203k Loans, mortgages, home buying

203K Loans Explained

Let’s talk about 203k loans!

Hello Frugal Friends! 

Buying your first home can be an overwhelming process. So many wants, things to consider, and let’s not even talk about how much paperwork! Although it can be overwhelming it is also one of the most rewarding moments you can experience as an adult. We all want that warm and fuzzy feeling of knowing you found your home, and the ease of closing and moving right in. 

This post was sponsored by Diamond Bloggers. All opinions are my own.

While 203k loans eventually get warm and fuzzy, it can take up to 6 months to reach the fun part. If you have a great vision and extreme patience like I did, a 203k Loan might be just what you need to make your home buying dreams a reality! 

203k loans, home buying, mortgages

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So what is a 203k Loan?

A 203k is a mortgage that allows you to bundle the costs of your home and the home repairs into one loan. 

Example: Let’s say you have a $200,000 budget for your home. You find a home you love for $150,000, but it doesn’t have the finished basement or remodeled kitchen you envisioned. With the 203k loan, you could pay $150,000 for the home and then take an additional $50,000 to renovate it to your liking. 

You have the option to use a 203k loan to do a full home rehab or just to make a few repairs. 

Two types of 203k Loans

Limited or Streamline– a streamline 203k is to make repairs that will cost less than $35,000. Contractually, your repairs would need to total less than $29,000 and then the other $6,000 is set aside for permits, inspections, and contingency. There are some restrictions on the things you can repair with this version of the loan such as: making structural changes (moving load-bearing walls, adding rooms) or changing the footprint of the home.

Standard– a standard 203k is for repairs that exceed $35,000. The upgrade possibilities are practically endless with this option. The only thing you cannot use this loan for is minor landscaping, luxury amenities (think tennis courts, pools, etc), and anything you cant get built within a 6-month time frame. This is the perfect way to tackle some of those deal-breaking repairs such as outdated electric, bad plumbing, or a leaky roof.

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203k loans are not a well-known option. Our realtor wasn’t even familiar with this type of loan until we inquired about it. I first learned about 203k loans at a first time home buying class I took with my then boyfriend about 2 years ago. We attended the class to get an idea what kinds of things we needed to do to prepare ourselves to buy a house (who knew less than one year later we would be married and right in the middle of settlement). This type of loan always stood out to me, as I told myself long ago I wanted to stay within a certain budget for my future home. I was convinced I could find a house we loved at a price that was well within our means.

And thanks to the 203K Loan, we did just that!  

Now that we are all moved in to our house, I can reflect on the advantages of going with this untraditional loan type.

Why 203k worked for us

Less surprises about the condition of your home. Sometimes you don’t know you have hidden issues until you get something else fixed. With this loan, even if your unforeseen issue isn’t on your to do list at least you know what you need to work on going forward. Should you chose the standard 203k option, it will require you to get a more in-depth home inspection than a traditional FHA loan offering even more insight on the home you are purchasing.

Get your upgrades done to your liking. Turn-key is nice, but the previous owner’s vision for the house might not line up with your own.

Less competition when buying. I love the house we chose, but it had a very outdated layout that made it mess desirable to buyers. A few knocked out walls, new kitchen, and two new baths later it’s just as nice as anything else we looked at.

More bang for your buck. Our home was priced $50,000 below market value and even with our repairs we made out $15,000 less than the home is worth.

Instant equity. After repairs, our home’s value went up right away. It could easily have taken years to reach that same value otherwise.

There is a little more to consider when applying for a 203k loan. The main things being deciding how much work you want to tackle, and who will do the work. Selecting the contractor to complete your renovations can make or break your project. We will discuss how to select a contractor for the job in a separate post because it’s literally the most important part!

Make Sense?

That about covers the basics of a 203k loan but to learn a bit more click here! Stay on the look out for my next 203k blog covering contractor selection!

Do you have a 203k success story? Or maybe your project turned out horrible? I’d love to hear either story. Just hop in the comments and tell me all about it!



  • DeShena@ExtravagantlyBroke.com March 14, 2019 at 11:58 pm

    Hi Shannon,

    Interesting! I had never heard of this type of loan. I was wondering about the interest rates on the 203K loans. Are the rates competitive? Also, is it hard to qualify?

    Good job providing some knowledge about this little known home buying option.

    • admin March 17, 2019 at 5:23 pm

      Hi Deshena!
      Interest rates are slightly higher. We got a 5% rate when rates were averaging about 4.6%. When interest rates go down you do have the option to refinance. Great question!


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