A Federal Housing Administration 203k loan is for buyers who desire to purchase a fixer-upper home with the intention of making repairs to it, according to Zillow. Loans are backed by the federal government and provide buyers with the funds to purchase or refinance a home and complete the necessary repairs.
In most cases, FHA 203k mortgage loans come with enough funds to make sure homebuyers have enough money to make repairs to the home, even if the final costs exceed the original estimate, notes Zillow. Buyers also have enough to take care of mortgage payments for up to roughly six months. While paying the new home's mortgage, buyers have the option of living elsewhere during the renovation process.
FHA 203k loans are available for properties that require structural repairs and those that require repairs to the plumbing system, floors, siding, decks or bathroom, states Zillow. Repairs and improvements that are considered extravagant or unnecessary to make the home inhabitable don't qualify for a 203k loan, such as a home theater or spa.
There are also specific types of properties that qualify for 203k loans, such as demolished homes with an intact foundation, one- to four-family homes that are at least a year old and homes that are being moved to a new location, according to Zillow. Buyers sometimes have a difficult time applying for a 203k loan, and there are also funding limits on the loan.