Buying a Fixer-Upper with an FHA 203(k): A Real-World Walkthrough

You found the house. Good street, good bones, priced right. It also has a furnace older than you, a kitchen from another decade, and a roof that is running out of years. You know a 203(k) can finance the purchase and the repairs in one loan. What you do not know is what actually happens between “I want this house” and “the work is done.” So let me walk you through it, one step at a time.

The house below is a typical example I put together from the kind of files I see every month, not one specific client. The steps are real. They come straight from HUD’s rules for the program.

Step 1: Is This House Even Eligible?

Picture a 1950s brick ranch in Southeast Michigan. Three bedrooms, one bath, full basement. It has been lived in, not abused.

The first question is simple. HUD requires the property to be an existing home that was completed at least one year before the loan’s case number is assigned. Our ranch has been standing for seventy years, so that box is checked.

The good news for fixer-upper buyers is this. A house that could not get a regular FHA loan because of health, safety, or security problems may still qualify for a 203(k), as long as the repair work fixes those problems. That is the whole point of the program.

Step 2: Standard or Limited?

There are two versions of this loan. The Limited 203(k) is for minor remodeling and nonstructural repairs, and the total rehab cost cannot go over $75,000. The Standard 203(k) handles bigger and structural work, has a $5,000 minimum in repairs, and requires a HUD-approved 203(k) consultant. A consultant is optional on a Limited, but you can still use one.

On our ranch, the list adds up fast: new roof, new furnace, an electrical upgrade, a kitchen, and a bathroom. Once the numbers push past what a Limited allows, a Standard is the fit. That choice belongs to you and your lender. My job is to lay out the pros and cons of each so you can decide with your eyes open. If you want the full side-by-side, I wrote about it in Standard vs. Limited 203(k).

Step 3: The Walk-Through and the Work Write-Up

This is where I come in. On a Standard 203(k), I personally inspect the property on site. I am looking for infestation and dry rot, anything that threatens the health and safety of the people living there, and whether the structure, heating, plumbing, electrical, and roofing are adequate. I go through the house against HUD’s 35-point checklist, from masonry and roofing down to cabinets and cleanup.

Then I write the Work Write-Up and Cost Estimate. That document lists every repair needed to meet HUD’s property standards and local requirements, plus the upgrades you choose to add. Each item is priced by labor and materials. HUD requires me to prepare it without using the contractor’s estimate, so it is an independent number your contractor’s bid gets measured against. That independence is what protects you from paying too much.

One thing I always tell people up front. My inspection is not a home inspection, and HUD makes sure you get that in writing. If you want a full home inspection too, get one.

Not sure the numbers will work at all? You or your lender can ask for a Feasibility Study first. It is an early look at whether the project makes financial sense before you are in too deep. I explain that in how I find out if your deal will close.

Step 4: Lock In the Contractor and Close

You choose your contractor. Before the loan closes, your lender needs a written agreement between you and that contractor, where the contractor commits to doing the work for the amount of the Cost Estimate and within the time allowed. Your lender reviews my Work Write-Up to set that time frame. On a Standard 203(k), it cannot be longer than 12 months. On a Limited, it is 9 months.

Your lender approves the loan and runs the closing. At closing, the renovation money goes into an escrow account. It does not go to you or the contractor in one lump sum.

Step 5: The Work, the Draws, and the Finish Line

The clock starts when the loan is funded. Work has to start within 30 days, and it cannot stop for more than 30 days in a row. If it does, the lender can treat the loan as in default. That is why a contractor who is ready to go matters so much.

On our ranch, the roof goes on first. When that stage is done, a draw request is made. I come out, inspect the work for completion and quality, and complete the HUD-9746-A draw request form. You and the contractor both sign it. That second signature is yours on purpose. Nobody gets paid for work you have not seen.

Then the lender reviews and approves the draw and releases the money, within five business days of a properly completed request. The lender holds back 10 percent of each draw until later. On a Standard 203(k), there can be up to five draws: four along the way and one final. I cover the details in how 203(k) draw inspections work.

Along the way, I keep the lender informed. If work stalls for more than 30 days in a row, or drifts away from the Work Write-Up without approval, I have to report it. And I keep you informed the whole way, because it is your house and your money.

Furnace, electrical, kitchen, bath. Stage by stage, inspection by inspection, until the final draw. That is how a tired ranch becomes the house you pictured when you first walked in.

Michigan Inspection Services works 203(k) files across Michigan, Indiana, Ohio, Pennsylvania, and Florida. Michael Al has been a Licensed Builder in the State of Michigan since 1994 and a HUD-Approved 203(k) Consultant since 2019, under HUD ID P1984.