FHA 203k: buy the home that needs work, and finance the work too.

What a 203k loan does

A 203k loan lets you buy a home and borrow for repairs in a single FHA mortgage, based on what the home will be worth after the work is done. One closing, one loan, one monthly payment. It's also available as a refinance if you already own the home.

Limited vs standard

Limited 203k: for non structural work like kitchens, bathrooms, flooring, roofs, HVAC and paint. The repair budget is capped, currently up to $75,000. It's simpler and faster.** Standard 203k:** for bigger projects, including structural repairs, additions and major systems. It requires a HUD consultant who reviews the plans, writes the scope and inspects the work as it's completed.

How the money flows

The purchase portion pays the seller at closing. The renovation money goes into an escrow account and is released to your contractor in draws as work is completed and inspected. You'll need a licensed contractor, a detailed bid, and a contingency reserve for surprises.

What I've learned from my own renovations

Budget for the surprises. Every older home hides something behind the walls. The contingency isn't optional, and you'll probably use it.** Your contractor makes or breaks it.** Pick one who has done 203k work before and is comfortable with draw schedules and inspections. Many great contractors simply don't want the paperwork.** Plan where you'll live.** If the home isn't livable during the work, you may be paying rent and a mortgage for a few months. Some 203k loans can include a few months of payments in the budget.** Expect it to take longer.** Closings run longer than a standard FHA purchase because of bids, consultant review and appraisal. Build that into your contract.

Is it right for you?

A 203k makes sense when you find a home in the right area that needs work other buyers won't take on, and you're patient with the process. It's one of the few ways to build instant equity with a small down payment. It also works on a duplex to fourplex if you live in one unit.

The ugly house on the right street

Tyler found a 1970s home in a great Winter Park area neighborhood that had sat on the market because of a dated kitchen, old roof and original bathrooms.

With a limited 203k, he financed the purchase plus a new roof, kitchen and baths in one loan with a small down payment. After the work, the home appraised well above his total cost.