Dear LoanSafe,

I just inherited my grandparents house. I always planned on living in it, but it’s quite worn and needs a bit of fixing up. I would love to live in the home I grew up in most of my life, but don’t have the budget to fund the major repairs it does need. Is there a mortgage available that will help me pay off the loan while making the needed repairs?


This question is quite common, not many people know that certain mortgages can be used for more than just buying a home. The Federal Housing Administration (FHA) insures affordable home loans for borrowers who cannot afford a 5-20 percent down payment or need additional financing for home repairs.

The loan that would be ideal in this situation is the FHA section 203(k) program, which allows one to refinance (or purchase ) a single-family home in need of repairs. Under this program, the maximum loan amount is based on the estimated value of the property after repairs.

Depending on the location and condition of your property, another perk of this program is the ability to combine the loan with local/state government grant programs. Certain state housing agencies have adopted their own programs specifically to meet the Section 203(K) and make them more accessible to eligible borrowers.

Eligibility Requirements From HUD

  • To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.
  • Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided the existing foundation system remains in place.
  •  In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.
  • An existing house (or modular unit) on another site can be moved onto the mortgaged property; however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation.
  • A 203(k) mortgage may be originated on a “mixed use” residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

The actual repairs that are permitted under this loan include:

1. Disability access
2. Heating, ventilation and air conditioning
3. Plumbing
4. Roofing and flooring
5. Energy conservation
6. Kitchen remodeling
7. New appliances
8. Room additions
9. Decks and patios
10. Bathroom remodeling
11. Room additions or second-story additions
12. New siding
13. Finishing an attic or basement
14. Site grading

Please feel free to contact us at (800) 841-5494 or fill out the brief form here and we’ll strive to help you get a loan as quick and easy as possible! is America's #1 consumer mortgage forum with over 32,000 members. Get the latest news, information and tips from an online community you can trust.