An FHA 203K loan is a government-backed mortgage designed for buyers who want to purchase a damaged or older home and make repairs. Here's how it works: Imagine you find a home that needs a brand new bathroom and kitchen. An FHA 203K lender will provide you with the funds to buy (or refinance) the house and cover the necessary renovations to the kitchen and bathroom.

Often, the loan will also include an up to 20% contingency reserve to ensure you have the funds to complete the remodel if costs exceed estimates. Additionally, it may offer a provision for up to six months of mortgage payments, allowing you to live elsewhere while remodeling while still keeping up with the new home's mortgage payments.

Why a 203K Loan?

The main benefit of these loans is that they give you the ability to buy a home in need of repairs that you might not otherwise have been able to afford to buy. Plus, the down payment requirements are minimal, and often you get decent interest rates.