203K loans are guaranteed by the Federal Housing Administration (FHA) and are often used by families in low- to moderate-income brackets to purchase or refinance a primary residence in need of repair. The funds can be used for minimum repair work such as adding a new room or landscaping. It can also be used for repair that’s more extensive such as plumbing, kitchen remodeling, or accessibility improvements for people with disabilities. However, anything considered a luxury is not allowed. The FHA defines “luxury” items as things like tennis courts, swimming pools, hot tubs, and outdoor kitchens. The main benefit of a 203K home renovation loan is the lower credit score (640), down payment (3.5% minimum), and debt-to-income ratio (50%) than our conventional HomeStyle loans allow. However, anyone with a 203K renovation loan will pay mortgage insurance premium (MIP). It’s 1.75% of the loan amount upfront then 0.8% spread out in monthly payments for the life of the loan.