The Federal Housing Administration offers a low down payment mortgage to help first-time homebuyers purchase and renovate a fixer upper. It's a way to finance a rehab, especially if you're willing to put a little sweat equity into the property. But there are restrictions — you'll probably need to work with a consultant assigned by the lender to oversee the project.
There's also a private mortgage insurance payment that needs to be made, and the home has to be your personal residence. Check to see if the program works for you.
The FHA 203(k) loan consists of two programs.
- A standard 203(k) mortgage is for major renovations, such as structural changes, to single-family properties. To qualify, the borrower's project must have a minimum repair cost of $5,000. An FHA-approved consultant must oversee the project.
- A limited 203(k) mortgage is for minor rehab projects, such as installing new appliances or carpeting. It covers nonstructural work up to $35,000. There is no minimum amount for repair costs.
How you can qualify
- Review if you have a minimum credit score of 580 to qualify for a 3.5% down payment
- Consider making a 10% down payment if your credit scores are 500 to 579
- Choose an FHA-approved mortgage lender, which will assign a consultant to plan the renovation work
- Determine if you can afford the FHA's private mortgage insurance of 1.75% of sales price and monthly insurance payments
- Let the FHA know that the home will become your personal residence once work is complete
- Verify that your renovations qualify for the FHA's county-specific loan limits, which in 2025 was $524,225 for most counties and up to $1,209,750 for high-cost areas
Pro tip: Gather all documentation for a loan ahead of meeting with a lender, including tax returns and your income statement to avoid delays or denials due to missing documents.
Pro tip: Speak with a lender about a 203(k) loan before beginning your search for a property. This sets realistic expectations of the scope of work and costs ahead of time.
What the loan can be used for
The FHA may require your lender to assign a consultant to the rehab, to help plan costs and the scope of work. Loans must be used for approved projects, including:
- Removing health hazards such as lead-based paint
- Remodeling existing rooms
- Adding a second story
- Replacing flooring or carpeting
- Adding new rooms
- Building a porch or deck
- Improving a home’s energy efficiency
- Repairing/replacing plumbing, heating, air conditioning and electrical systems
- Increasing the home's accessibility for persons with disabilities
- Creating an eligible accessory dwelling unit
- Demolishing the home as long as the foundation is left
Pro tip: Pay attention to deadlines when planning your scope of work. Renovations must start within 30 days and finish within six months of closing.
Standards for finished home
A renovated house has to provide basic shelter that will protect its residents and must address these criteria:
- Provide protection from outside elements, such as weather and crime
- Provide a safe and healthy environment for occupants
- Provide a sturdy home free of defects
What the drawbacks are
- Be prepared for strict guidelines on down payments, loan amounts, residency and financial readiness
- It's easy for buyers to go overbudget on homes with major structural problems, so stick to the ones that only need cosmetic changes