The FHA 203k Program is a construction loan bundled with an FHA loan that enables buyers to purchase distressed properties as-is, with a minimum down payment.
The FHA’s 203(k) loans range from $5,000 to $35,000, and cover an assortment of projects designed to rehabilitate single family properties. The FHA does not directly lend out the money, but it insures the loan in partnership with a lender.
This enables you to buy a fixer-upper and rehabilitate it for less than you would spend on a house in that would need little work. The best part of the FHA 203K Program is that you gain instant equity after renovations are complete. We also have the plan ready and in place with preapproved properties in our inventory. We can save time and money in searching for all of the details needed to complete the process.
203(k) - How It Is Different
Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage proceeds unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the improvements to be finished before a long-term mortgage is made.
When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods.
The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.
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Some of the information used in the above content is derived directly from the U.S. Department of Housing and Urban Development. 
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