What are the 203(k) Loan Pros and Cons?

203(k) Pros and Cons: What You Need to Know

The 203(k) loan is perhaps the best option on the market if you want financing to purchase and renovate (or refinance and renovate) a home. While the FHA 203(k) loan has a variety of upsides, it also has downsides, too. In this article, we’ll review both the pros and cons of 203(k) loans to give you a better picture of whether this form of financing can help you get the home of your dreams.

The Benefits of 203(k) Loans

One of the major benefits of 203(k) loans is the fact that they only require borrowers to get one loan in order to finance the purchase (or refinance) and renovation of a property. Most other mortgages would require a borrower to get another, secondary loan, in order to finance property repairs and improvements. By avoiding this, borrowers can save significant time, money, and headaches. Plus, since the 203(k) loan is an FHA loan, borrowers with credit scores of at least 580 can qualify for low 3.5% down payment. 203(k) loans are also fully assumable.

Another major benefit is that 203(k) loans have extremely flexible uses; in fact, borrowers can rebuild a home from its foundation with 203k funds, and can even use 203(k) funds to purchase appliances. Finally, FHA 203(k) loans may actually be used to purchase homes that do not conform to HUD’s minimum property standards, as long as the planned work will bring the home into compliance.

The Drawbacks of 203(k) Loans

203(k) loans may be the ideal way to purchase and renovate a home, but they’re not without their hassles and complexities. For example, borrowers must hire a 203(k) consultant, who will assist them in the process of getting bids from contractors. Borrowers must hire a contractor to do all the work (no work can be done yourself), and the contractor must be approved by your lender. In addition, 203(k) loans have a more lengthy and complex closing process (and require somewhat more documentation) than other types of home loans. Finally, it should be noted that FHA 203(k) loans are not open to property investors— a borrower must live on the property in order to qualify for a 203k loan.


If you’d like to learn more about FHA 203k loans, simply fill out the form below and a friendly FHA home loan specialist will get in touch!