Older Downriver Home Needs Work? How an FHA 203(k) Works

What is an FHA 203(k) loan?

It’s an FHA-insured mortgage that covers both buying a house and fixing it, in one loan with one closing. If you’ve found a Downriver home that needs a new furnace, a kitchen or more, it puts the repair money into the same mortgage as the purchase.

HUD’s program page says part of the loan pays the seller and the rest goes into an escrow account that’s released as the rehabilitation is done. HUD Handbook 4000.1 says the same in its own words: there’s only one closing that includes the rehabilitation funds, and those funds are escrowed and disbursed as the work is satisfactorily completed. The federal rule behind the program requires the money to be held in an interest-bearing account, trust or escrow pending advancement.

The house has to be an existing home, not a new build. The federal rule says the loan covers a dwelling completed more than one year before the application, and the handbook says the property must have been completed for at least one year before the case number is assigned.

Honestly, the biggest change is the order of things. With a 203(k), the repair plan is part of the loan, so plan to have contractor bids ready while you’re still under contract, and ask the lender exactly what it needs from you and when. On a Standard 203(k), the consultant’s work write-up is part of that list.

Limited or Standard: which 203(k) fits the house?

The size and type of the work decide it. Here’s how HUD lays out the two:

	Limited 203(k)	Standard 203(k)
Type of work	Minor remodeling and nonstructural repairs	Remodeling and repairs, including structural work
Repair cost	Total rehabilitation costs up to $75,000	Minimum repair cost of $5,000
203(k) consultant	Optional	Required
Time to finish	Up to nine months	Up to 12 months
Draw requests	Up to four per contractor	Up to five

The Limited cap of $75,000 is in HUD’s Mortgagee Letter 2024-13 and the handbook, and the nine-month and 12-month periods are in that letter and HUD’s FHA INFO notice. HUD’s Mortgagee Letter 2026-06 raised the Limited draw count to four per contractor in June 2026, and the handbook gives the Standard version five.

The mortgage amount has limits too. HUD’s handbook and the federal rule both cap a 203(k) mortgage at the lesser of several amounts, including FHA’s mortgage limits and 110 percent of the home’s value after the work. For 2026, HUD’s Mortgagee Letter 2025-23 and its December 2025 announcement put FHA’s national low-cost area limit, the floor of its limits, at $541,287 for a one-unit home. Which limit applies to your county and your house is a calculation for your lender, and what the house will be worth when the work is done is part of it.

If the repair list includes the foundation, structural changes or anything that keeps you out of the house for long, ask your lender whether the work fits the Limited version at all. The Limited version can’t keep you out of the home for more than a total of 30 days during the work, according to the 2024 mortgagee letter and the FHA INFO notice.

What does the 203(k) consultant do, and what does it cost?

The consultant writes up the work and inspects it as it gets done. The 2024 mortgagee letter and the handbook both have the lender review the consultant’s Work Write-Up on a Standard 203(k). You need one on a Standard 203(k), and you can choose to use one on a Limited 203(k). HUD’s mortgagee letter, the handbook and the consumer fact sheet all say so.

The federal rule lists the consultant’s jobs, including the draw inspections for releasing funds during construction. HUD’s program page has the lender choose a consultant from HUD’s roster, a step it marks optional for the Limited version.

HUD sets the maximum fees a consultant can charge. The 2024 mortgagee letter and the handbook give the same schedule:

• Feasibility study: up to an additional $375.
• Work write-up: up to $1,000 for repairs up to $50,000, up to $1,200 for $50,001 to $85,000, up to $1,400 for $85,001 to $140,000, and up to 1 percent of repair costs or $2,000, whichever is lower, above that.
• Draw inspection: no more than $375.
• Change order: up to $120 per request.
• Reinspection of a work item: up to $225 when the borrower or lender asks for one.

On a Limited 203(k), the consultant’s fee can be financed. The mortgagee letter lists it among the financeable costs, and the FHA INFO notice says the update allows financing of consultant fees for the Limited version.

On a smaller job, ask your lender what a consultant would cost under that schedule and what you’d get for it before you decide.

How does a 203(k) pay out the repair money?

In stages, from the escrow account, as the work is done. On a Standard 203(k) the consultant performs the draw inspections the lender requests, and on a Limited 203(k) with total repairs over $15,000 the lender has the work inspected. On a Limited 203(k) with total repairs of $15,000 or less, HUD’s 2026 mortgagee letter and the handbook let the lender confirm completion with contractor receipts or a signed Borrower’s Letter of Completion instead.

The current rules, stated in HUD’s Mortgagee Letter 2026-06 of June 2026 and the handbook, are:

• Limited 203(k): up to four draws per contractor, made up of an initial draw at closing, no more than two intermediate draws and a final draw.
• Standard 203(k): up to five draws, four intermediate and one final.
• Timing: the lender must release funds within five business days after receiving a properly executed draw request, plus a title update when needed.
• Holdback: the lender must hold back 10 percent of each draw request before releasing funds, unless a subcontractor is 100 percent done with a work item, the inspector accepts it and the lien waivers are in. In that case the holdback is the lender’s call.

On a Standard 203(k), the lender can also build in a reserve for your mortgage payments while the work keeps you out of the house. The 2024 mortgagee letter and the handbook both cap that reserve at 12 months of payments.

That payout schedule shapes the contractor you hire. Ask any contractor you’re considering whether they can work on staged draws with a holdback before you put their bid in front of the lender.

It also shapes your own cash. Between closing and the final draw, you’re living with an unfinished project and a lender that releases money in steps. Ask the lender to walk you through a sample draw schedule on your repair list, so you know when each contractor gets paid and what has to be inspected first.

What should you line up before a 203(k) offer?

A repair list, the permit questions and a lender who does 203(k) loans. The rest of the steps follow once you’re under contract.

Permits matter early. HUD’s consumer fact sheet says the program requires all building permits to be obtained before work starts and posted on site, the handbook says the permit must be obtained before work commences, and HUD’s program page says the contractor obtains the necessary permits before the project starts. Michigan’s construction code adds detail. The state’s building permit page and the code text that Battle Creek’s building department reproduces both say that before construction, an owner, or the owner’s builder, architect, engineer or agent, shall submit an application in writing to the appropriate enforcing agency for a permit.

Both also say ordinary repairs may be made without a permit. Under that same rule, ordinary repairs don’t include cutting away a wall or partition, removing or cutting a structural beam or bearing support, changing a required means of egress, or the addition, alteration, replacement or relocation of water supply, sewer, drainage, waste or vent piping, electric wiring, or mechanical or other work affecting public health or general safety. Hold your repair list up against that.

Then call the city or township building department where the house sits and ask which agency handles permits for the address, which items on your list need one and how long approval takes. Also ask the listing agent whether the city requires its own inspection when a home is sold, and if it does, what that inspection found.

Then work through this list with your lender and agent:

1. Get a home inspection and a written repair list. Our Downriver home inspection guide covers what an inspection can turn up.
2. Ask the lender whether the work fits a Limited or a Standard 203(k).
3. Get contractor bids that match the repair list.
4. If it’s a Standard 203(k), ask the lender when the consultant’s write-up will happen and how it fits your contract dates.
5. Ask the lender to run the maximum mortgage calculation, including the after-improved value test, on the house and the repair list.
6. Build the work timeline into your move. Nine months for a Limited and 12 for a Standard are the outside limits, not targets.

For the rest of the money picture, our guide to Downriver financing and lenders and the first-time buyer guide cover loan options and closing costs. If the house is older and you’re weighing what to fix before you even get to the loan, our post on repair credits versus repairs before closing is a useful next read.

Frequently asked questions

Can a 203(k) pay for foundation work?

Under the Standard 203(k), yes. HUD's handbook lists repairing, reconstructing or elevating an existing foundation among the eligible Standard work, and HUD's 2024 announcement said the program covers structural repairs such as foundations and new roofs. The Limited 203(k) is for minor remodeling and nonstructural repairs, and the handbook lists foundation work as ineligible for it.

When did the Limited 203(k) limit go up to $75,000?

For FHA case numbers assigned on or after November 4, 2024. HUD's Mortgagee Letter 2024-13 and its FHA INFO notice both give that date, and the notice says the limit rose from a maximum of $35,000. The mortgagee letter says FHA will review the limit each year alongside its nationwide loan limits.

Do energy improvements count against the $75,000 Limited cap?

Not necessarily. HUD's Mortgagee Letter 2024-13 and Handbook 4000.1 both say that for Limited 203(k) transactions, the costs for energy improvements can be in addition to the $75,000 limit on total rehabilitation costs. Ask your lender which items on your list it would treat as energy improvements.

Can permit fees go into the loan?

Yes. HUD's mortgagee letter lists permits among the costs a Limited 203(k) can finance, and the handbook lists permit fees with a note that the permit must be obtained before work starts. Ask your lender to show the permit line on your cost breakdown.

Sources

• HUD Mortgagee Letter 2024-13, 203(k) Rehabilitation Mortgage Insurance Program Updates (July 9, 2024)
• HUD FHA INFO 2024-44 (July 9, 2024)
• HUD News Release 24-170 (July 9, 2024)
• HUD Mortgagee Letter 2026-06, Limited 203(k) draw request update (June 23, 2026)
• HUD Single Family Housing Policy Handbook 4000.1, Update 18 (issued August 12, 2026)
• HUD, 203(k) Rehabilitation Mortgage Insurance Program Types
• HUD, 203(k) Rehabilitation Mortgage Insurance Program
• HUD, 203(k) Consumer Fact Sheet (revised 11/4/2024)
• 24 CFR 203.50, Eligibility of rehabilitation loans (eCFR)
• State of Michigan, LARA Bureau of Construction Codes, Building Permit Information
• City of Battle Creek, State law information in one place (Single State Construction Code Act and Michigan Building Code excerpts)
• HUD Mortgagee Letter 2025-23, 2026 Nationwide Forward Mortgage Limits (December 11, 2025)
• HUD News Release 25-145, 2026 FHA loan limits (December 11, 2025)