The FHA 203(k) loan is a special program that allows homebuyers who want to make major renovations to a home to roll the cost of the repairs into their mortgage. The chief advantage of a 203(k) mortgage is that the loan amount is not based on the current appraised value of the home, but on the projected value after the repairs are completed.

A “streamlined” 203(k) allows the borrower to finance up to $35,000 for nonstructural repairs, such as painting and replacing cabinets or fixtures.

Among the repairs an FHA 203(k) will cover:

Bathroom and kitchen remodels

Flooring

Plumbing

Decks and patios

Heating and air-conditioning systems

One key benefit of a 203(k) is that it allows you to buy a fixer-upper that you might not have been able to afford otherwise. However, not all properties qualify and applying for the loan can be more difficult because a detailed proposal of the work and cost estimates are required.