FHA 203(k) Overview

Most mortgages will not lend against a house that cannot pass an appraisal. That is a real problem in Baltimore, where a sound row home with a failed roof, no working systems and forty years of deferred maintenance is a common thing to find and an impossible thing to finance conventionally. The 203(k) exists for exactly that gap.

It is one FHA-insured mortgage covering the acquisition and the rehabilitation together, sized against the after-improved value of the property. You close once. The renovation portion does not come to you at closing: it goes into a rehabilitation escrow held by the lender and comes out in draws as the work gets done.

• It is a primary residence product. Owner-occupants, plus HUD-approved nonprofits and governmental entities. It is not an investor loan.
• It is capped by the FHA forward mortgage limit for the county, which for a one-unit property in Baltimore City and Baltimore County is $747,500 in 2026. Confirm the current figure with your lender before you rely on it.
• One to four unit properties are eligible, which matters in a city built out of two and three unit conversions.
• The work is on a clock written into the Rehabilitation Loan Agreement, and the clock starts at closing rather than whenever the crew shows up.

The split is not really about money. It is about whether the work is structural and how long it will take, and HUD defines the boundary precisely enough that you can usually place a project before you talk to anyone.

The $75,000 Limited ceiling is not permanent. HUD reviews it every year alongside the nationwide forward mortgage loan limits, and any increase is announced at the same time. It was $35,000 until November 2024, so it does move.

The test is roughly whether the work becomes a permanent part of a home somebody lives in. That covers most of what an older Baltimore property actually needs, and excludes most of what people add to a wish list once they know there is a budget.

The practical consequence is that scope discipline matters more here than on a cash job. On a normal renovation an ineligible item is just a line you decide about. On a 203(k) it can hold up an entire draw.

A 203(k) has more people in it than a normal renovation, and knowing who decides what saves a great deal of time when something needs a decision.

1. 01The lender. An FHA-approved mortgagee. They underwrite the loan, hold the rehabilitation escrow, approve draws, and must release funds within five business days of a properly executed draw request. Not every FHA lender writes 203(k) loans, and the ones who do it often are noticeably easier to work with than the ones who do it occasionally.
2. 02The 203(k) Consultant. On HUD's roster, recertified every two years. Required on Standard, optional on Limited. They walk the property, prepare the Work Write-Up that everything else is priced and inspected against, review architectural exhibits, and inspect at each draw.
3. 03The appraiser. Values the property as-is and after-improved. The after-improved figure is what the loan is sized against, which is why the Work Write-Up has to be complete before the appraisal rather than after it.
4. 04The contractor. Prices the Work Write-Up line by line, signs a Borrower Contractor Agreement that fixes the completion time frame, does the work, and submits the draw requests.
5. 05You. The borrower, and the one who signs. Draw checks are normally issued to you and the contractor as co-payees, unless you give the lender written authorization at each draw to pay the contractor directly.

Roughly this order, and the order matters. Most 203(k) delays come from doing one of these steps out of sequence and having to redo the one before it.

1. 01Get pre-approved with a lender that genuinely does 203(k) work. Ask how many they closed last year.
2. 02Find the property, and write the purchase contract with enough time in it for a 203(k) to close. This is not a thirty day settlement.
3. 03The Consultant walks the property and produces the Work Write-Up. On a Limited, you and your contractor produce the work plan instead.
4. 04Contractors bid the write-up, line by line and in its order, so the lender can read the bid against the write-up. The lender reviews the contractor.
5. 05The appraisal comes in on the after-improved value, based on the write-up.
6. 06Underwriting, then closing. The rehabilitation funds go into escrow at closing, not into anyone's account.
7. 07Work begins, and the clock in the Rehabilitation Loan Agreement is already running.
8. 08Draws are requested as work completes, inspected on Standard and on larger Limited jobs, documented on smaller ones.
9. 09Final draw, closeout, and the escrow closes. Anything left in the contingency reserve is handled at this point rather than quietly kept.

This is the part that catches out both homeowners and contractors who have not done one. The money is real, it is already set aside, and it still arrives in a specific number of pieces at specific moments.

• Standard: a maximum of five draw requests, four intermediate and one final. A single draw can carry multiple disbursements and still counts as one draw.
• Limited: a maximum of four draws per contractor, being the initial draw at closing, no more than two intermediate draws, and the final. Each draw can carry up to two separate disbursements.
• The lender must release funds within five business days of a properly executed draw request, with a title update where one is needed.
• On Limited jobs, total repairs of $15,000 or less can be signed off on contractor receipts or a Borrower's Letter of Completion, without an inspection. The lender may still choose to inspect and may charge you for up to two inspections per contractor.

The number that matters to your contractor is four or five. A crew that needs paying every Friday cannot run on four draws across nine months without financing the gap themselves. That is the single biggest practical difference between a 203(k) job and a cash job, and it is why the contractor selection question is really a cash flow question.

None of these is exotic. Every one of them is a version of the same thing: the write-up, the money and the calendar are locked together, so a problem in any one of them shows up in the other two.

• An underbid or incomplete Work Write-Up. The write-up is the contract, the appraisal basis and the inspection standard all at once. Anything missing from it becomes a change order that has to travel through the Consultant and the lender.
• A contractor who has never done one. Draw-based payment and inspection-gated stages are a cash flow model, not a paperwork detail.
• Treating nine or twelve months as generous. Permits, inspections and long lead materials eat the front of that window before a wall gets opened.
• Scope drift into ineligible work, discovered at a draw rather than at the write-up.
• Choosing Limited for a job that is really Standard, and finding out when the appraisal calls for a repair that needs a Consultant specification or architectural exhibits.
• Nobody owning the paperwork. Somebody has to chase inspections, change orders and draw requests, and if that is nobody then it is you.

We are the contractor on these, not the lender and not the Consultant. What that means in practice is that we price and build to somebody else's document and keep the paperwork moving so the draws do not stall.

• We price the Work Write-Up line by line, in the write-up's own order and format, so the lender and the Consultant can read our number against theirs without translating it.
• We run to the draw schedule and carry the cash between draws, which is what lets the crew stay on the job rather than leaving for a paying one.
• Our file is ready before it is asked for: MHIC #146800, EPA lead certification NAT-F234904-1, insurance certificates sent by the agent rather than by us, W-9 and contractor profile.
• Change orders go through the process, priced and approved before the work happens, rather than being built first and papered afterwards.
• Pre-1978 row homes are most of what we do, which is most of what a 203(k) buys in this city. Lead-safe containment is the normal way we work, not a special arrangement.