How Does the FHA 203(k) Loan Compare to a 203(k) Limited Loan or Streamlined 203(k) Loan?

If you didn’t already know, there are actually two 203(k) loan variants available. The first is the standard loan, which is designed for homes that need lots of renovation work to make them livable. However, what if the home you’re considering doesn’t need to be gutted and rebuilt? In that case, you can make use of the second option – the Streamlined/Limited 203(k) loan.

Note that this originally named the Streamlined 203(k) loan, but HUD has changed it. It is now only referred to as the Limited 203(k) loan because it is limited to homes that require less than $35,000 in repairs and renovation work.

There are quite a few additional differences between the two loans, though. For instance, the Limited 203(k) loan has fewer use cases. The FHA specifies the following:

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  • Repairing and replacing the HVAC system

  • Replacing or repairing the roof

  • Interior and exterior painting

  • Replacing carpeting and other flooring

  • Updating appliances

  • Installing a well

  • Installing a septic system

  • Weatherizing the home

  • Updating electrical wiring

  • Upgrading the kitchen

  • Replacing doors and windows

As a way of further illustrating the purpose of the program, the FHA/HUD explains, “FHA’s Limited 203(k) program permits homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their home. Homebuyers and homeowners can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or an FHA appraiser. Homeowners can make property repairs, improvements, or prepare their home for sale. Homebuyers can make their new home move-in ready by remodeling the kitchen, painting the interior, or purchasing new carpet.”

The primary difference other than total renovation costs is that the Limited version of the loan is not designed for homes with much in the way of structural repairs needed. In addition, you do not need to find a 203(k) consultant. You can work with a 203(k) contractor directly and just submit a work plan to your lender. Of course, the contractor and work plan are still subject to the lender’s approval.

There are other differences, as well. For instance, there is much less paperwork required with this loan than with the conventional 203(k) loan. This results in fewer delays and a faster process overall, which can save you not just time, but sanity.