What Is the Difference Between a FHA Loan & an FHA 203K Loan?


The Federal Housing Administration partners with lenders around the United States to offer FHA loans and 203k loans. FHA loans are designed to help people with minimal funds for a down payment to buy first time properties and people with existing FHA loans to refinance to lower rates. 203k loans enable home buyers to have access to additional funds beyond the purchase price to pay for necessary repairs on homes in a state of disrepair.


During 1934, at the height of the Great Depression, Congress established the Federal Housing Administration. The FHA was created to provide mortgage insurance on low down payment loans to encourage banks to write loans and to help Americans with minimal savings to move into affordable housing. In 1978, the U.S. Department of Housing and Urban Development, which had assumed control of FHA in 1965, amended section 203k of the National Housing Act. The amendment was designed to encourage the rehabilitation of run-down neighborhoods and to facilitate the effort, the FHA began insuring 203k rehabilitation loans offered through partner banks.

Down Payment Requirements

As of 2010, the FHA requires home purchasers to make down payments of at least 3 1/2 percent for both standard FHA loans and FHA 203k loans. However, the down payment on a regular FHA loan amounts to a percentage of the purchase price whereas on a 203k loan the down payment equals 3 1/2 percent of the total cost of the purchase and the included repairs. The FHA does not approve 203k loans requiring less than $5,000 of funds for repairs but the maximum limit varies based on the location of the home and the nature of the repairs and upgrades.


The FHA backs loans on properties containing between one and four units. People can use FHA loans to buy condominiums in buildings not exceeding four stories as long as the complex contains mostly owner-occupied units, and the building was not converted from an apartment complex in the preceding 12 months. Other limitations apply in some areas and condo certificates are required to demonstrate the eligibility of the units. You can only use a 203k loan for a condo if the building housing it contains no more than four units.

Other Differences

People buying homes with FHA loans have to pay the first year of mortgage premium insurance upfront whereas 203k loans have no upfront PMI requirements. Lenders write 203k loans in excess of the anticipated cost and keep excess funds on hand to cover expenses if the budget runs over. Funds left after the rehab are applied to the principal. 203k loans cannot pay for luxury upgrades and safety and energy efficient upgrades must take precedence over cosmetic repairs.

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