Michigan's housing stock is old, and the homes in the best locations are often the ones that need the most work. An FHA 203(k) lets you buy the house and finance the renovation inside a single mortgage, underwritten against what the property will be worth once the work is done — not what it looks like on the day you walk through it. Here is how the two versions differ, what the money is allowed to touch, and how the repair escrow actually pays your contractor.
Get My Real Numbers → Start With FHA BasicsThat single difference is the whole program. Everything else is mechanics.
Here is the situation this loan exists to solve. You find a house in the right school district at a price that finally works, and the reason it works is that the roof is at the end of its life, the furnace is original, and there's chipping paint on a home built well before 1978. The FHA appraiser walks it and calls those items out, because FHA won't insure a mortgage on a property that doesn't meet its minimum property requirements. Now the repairs have to happen before closing. The seller won't pay for them, you'd be spending real money improving a house that isn't yours yet, and a deal that made sense for everyone quietly dies over a roof.
The 203(k) breaks that loop. Instead of appraising the property as it sits, the appraiser values it based on a contractor's written scope of work — an After Improved Value. The mortgage is written against that figure. At closing, the money for the repairs doesn't go to you and it doesn't go to the seller; it goes into a rehabilitation escrow account and is released to your contractor in stages as the work gets verified. You end up with one loan, one closing, and one monthly payment covering both the purchase and the renovation.
Purchase price and renovation budget financed together in a single fixed-rate or adjustable-rate mortgage. One application, one appraisal, one set of closing costs, one payment. Not a mortgage plus a separate rehab loan at a second rate.
The appraiser reads the scope of work and values the property as completed. That is what makes a rough house financeable at all — and it's why the contractor's write-up has to be in hand before the appraisal, not after.
You never hand a contractor a lump sum and hope. Renovation funds sit in a rehabilitation escrow account and release in draws as work is completed and confirmed, with a contingency reserve set aside for what turns up behind the wall.
FHA runs two flavors of the 203(k). Picking the right one early matters, because the Limited version has hard boundaries and discovering one of them in week three is expensive. The short version: if a wall is moving, you're on the Standard.
| Limited 203(k) | Standard 203(k) | |
|---|---|---|
| Total rehabilitation cost | Up to $75,000, raised from $35,000 in July 2024. This is the total — construction costs plus contingency reserve, permits, consultant and inspection fees, and title update fees | Minimum $5,000 in repairs, with no separate ceiling — the total loan is capped by the FHA limit for the county |
| Structural work | Not permitted | Permitted, including foundations and additions |
| FHA-approved 203(k) Consultant | Optional | Required |
| Time to complete | Up to 9 months | Up to 12 months |
| Draw requests | Maximum 4 per contractor | Maximum 5 total — four intermediate plus one final |
| Time out of the house | No more than 30 days total during the rehab | Longer displacement is contemplated |
| Typical scope | Roof, siding, windows, HVAC, electrical, plumbing, kitchen, bath, flooring, well and septic | Additions, foundation repair or elevation, gut rehabs, changing the number of units |
Program parameters summarized from HUD Handbook 4000.1 and FHA Mortgagee Letter 2026-06. FHA policy changes; individual wholesale lenders may also apply stricter overlays than FHA's published minimums.
FHA defines a repair as “major” — and therefore off-limits for the Limited 203(k) — when any one of four things is true: the work is expected to take more than nine months; it requires more than four draws per contractor; the repairs coming out of the appraisal need a consultant's written specification or architectural plans; or the work keeps you out of the property for more than a total of thirty days. Any one of those, and you're on the Standard 203(k). That isn't a downgrade. It's a different, more supervised process with a consultant running the schedule, and for a genuine rehab it's the right tool.
People assume this program is narrower than it is. The eligible list on the Limited 203(k) alone covers most of what a 1970s Michigan house needs.
The building envelope. New roofing, siding, gutters and downspouts. The items that most often end a deal on an FHA appraisal are squarely eligible here.
Mechanical systems. Plumbing, heating, air conditioning, and electrical — repair, replacement, or modernization. A furnace that won't survive a Michigan February is a financeable problem.
Kitchens and appliances. Remodeling, plus a new refrigerator, cooktop, oven, dishwasher, built-in microwave, and washer and dryer.
Outdoor structures. Installing, replacing, or repairing exterior decks, patios, and porches, along with fences, walkways, and driveways. Decks and patios have to add value equal to what you spend on them.
Wells and septic systems. A real consideration on unsewered property across Livingston, Oakland, and Washtenaw counties, where a failed evaluation can otherwise stop a sale cold.
Health, safety, and access. Lead-based paint stabilization on homes built before 1978, smoke detectors, and accessibility modifications for a person with a disability.
Structural work — Standard only. Structural alterations; repairing, reconstructing, or elevating a foundation; converting a one-family home into a two-, three-, or four-family; reducing a larger multi-unit building down to one-to-four units; or reconstructing a structure on an existing foundation that a licensed structural engineer certifies is sound.
An accessory dwelling unit. Renovating an existing ADU is eligible whether it's attached or detached. Building a new one is eligible only if it will be attached to the existing structure — a new detached ADU is not.
The program draws its line at luxury. The classic example is a swimming pool: repairing an existing in-ground pool, or removing one, is eligible work — installing a brand new one is not. The test HUD applies is whether the improvement is a permanent part of the property that serves a housing purpose, and all work must meet or exceed local building code and FHA's minimum property requirements. Contractors have to be licensed wherever Michigan or the local municipality requires a license, and permits have to be pulled before work starts and be on site for the work performed.
One more practical boundary worth naming early: FHA does contemplate a “self-help” arrangement where the borrower performs some of the work, but the lender has to be satisfied you're qualified to do it and that it will finish on schedule, and releases for self-help work are generally limited to materials. In practice most Michigan 203(k) files run through licensed contractors, and that's usually the right call — the escrow, the draw schedule, and the completion deadline are all easier to hit with a crew that does this for a living.
This is the part nobody explains, and it's the part that determines whether your contractor stays on the job. Four stages, start to finish.
On a Standard 203(k), an FHA-approved 203(k) Consultant walks the property with you, prepares a work write-up and cost estimate, and reviews the contractor bids for reasonableness. HUD publishes a searchable roster of approved Consultants. On a Limited 203(k) the consultant is optional and your written contract with the contractor does that job — though on anything with real complexity, hiring one anyway is cheap insurance. Either way, this document has to exist before the appraisal, because the appraiser is going to read it.
The appraiser takes the scope of work and returns an After Improved Value — what the property is worth with the renovation complete. That number drives the loan, which is the entire reason a house in rough condition becomes financeable. It also means the scope has to be realistic. Work that doesn't add value doesn't help you here, and an appraisal that comes in below the improved projection is a conversation we'd rather have in week one than week six.
The purchase closes like any other closing. The renovation portion moves into a rehabilitation escrow account rather than being disbursed. An initial draw at closing can cover up to 50% of the cost of materials that have been ordered but not yet paid for — where there's a supplier contract and an order placed for later delivery — so your contractor isn't floating the material bill. That's narrower than a general mobilization advance, and it's worth telling your contractor up front. A contingency reserve is also set aside for the things nobody could see: knob-and-tube behind the plaster, a joist that's worse than it looked. On a Standard 203(k), when the rehab is finished and the contingency wasn't needed, you can apply what's left to additional improvements with an approved change order.
Work happens in phases, and each phase releases a draw. On a Standard 203(k) the lender may approve up to five draw requests — four intermediate and one final. On the Limited 203(k), FHA raised the maximum from two draws per contractor to four in June 2026 (Mortgagee Letter 2026-06, effective immediately): an initial draw at closing, no more than two intermediate draws during the work, and the final draw. Each draw can carry two separate disbursements and still count as one draw. On either version, the lender holds back 10% of each draw until the work is signed off, with an exception when a subcontractor has fully completed a work item, the inspection is acceptable, and lien waivers are in hand. Once a properly executed draw request is in, the lender has five business days to release funds.
A contingency reserve can run up to 20% of the rehabilitation cost, and on a Standard 203(k) it is required — with a minimum of 10% on any structure 30 years or older, rising to a 15% minimum when the work write-up shows the utilities aren't operable. Given that the median Michigan home is now past its fiftieth birthday, that mandatory reserve is going to apply to nearly every Standard 203(k) written in this state. On a Limited 203(k) a financeable contingency is optional, but on an older house it is close to malpractice to skip it. Plan for it in the budget from day one rather than discovering it when the numbers are being finalized.
On a Limited 203(k), when total repair costs are $15,000 or less, completion can be documented with contractor receipts or your signed Letter of Completion and no inspection is required — though the lender may still choose to inspect, and may charge you for up to two inspections per contractor. Above $15,000, the lender must obtain an inspection confirming satisfactory completion and a signed Borrower's Letter of Completion.
This isn't a national talking point retyped for a local page. The 203(k) is disproportionately useful here for a concrete reason.
The median Michigan home was built in 1973, according to Census Bureau American Community Survey data — older than the country as a whole, and roughly 60% of the state's occupied homes, about 2.5 million of them, went up in or before the 1970s. In the older neighborhoods of Wayne and Genesee County the stock runs considerably older still. A great many of the state's most affordable, best-located houses are also the houses with an aging furnace, a roof on borrowed time, knob-and-tube wiring, and paint that predates the 1978 lead rule. That is precisely the intersection where a conventional purchase loan stops working and a 203(k) starts.
It also quietly solves a problem for people buying in a market where move-in-ready inventory is thin and gets bid up. The house that needs work has less competition. If you can finance the work, you're shopping in a much less crowded room — and you're building the equity that the renovation creates rather than paying someone else's flip margin for it.
If you have a listing that has gone under contract twice and lost the FHA appraisal both times over the same three repair items, the 203(k) is the conversation. The buyer doesn't need the seller to fix anything, and the seller doesn't need to fund repairs on a house they're leaving. It takes a broker who actually does these — the file is more coordination than a standard purchase, and it wants a scope of work early rather than late. I'm happy to look at a specific address before it goes back on the market. There's more on how I work with agents on the realtor page.
On a Standard 203(k) there's no separate cap on repair costs, but the total mortgage still has to fit inside the FHA loan limit for the county. For 2026, every Michigan county sits at FHA's national floor of $541,287 for a one-unit property, with higher limits for two-, three-, and four-unit properties. Michigan's median home price sits far enough below that ceiling that it rarely binds on a single-family purchase — but on an ambitious rehab of an already-expensive house, it's the number to check first. FHA's usual credit standards apply as well: the credit floor is 500, and 580 is the score at which FHA's standard financing terms begin.
Wherever you're looking — Oakland, Livingston, Genesee, Wayne, or Washtenaw County — the limit is the same this year. What changes is the property, and that's the part worth a phone call.
It's a good program, not a universal one. Four situations where something else fits better — and I'd rather tell you that up front than sell you the loan I happen to be writing about.
The conventional answer, and the better one if your credit is strong or you want to skip FHA mortgage insurance. Renovation costs are capped at 75% of the lesser of the purchase price plus renovation costs, or the as-completed appraised value. Critically, HomeStyle can be used on a one-unit second home or investment property, which the 203(k) cannot.
The other conventional route, with its own rulebook and a similar 75% renovation cap. Also permits second homes and one-unit investment properties, allows up to 450 days to complete the work, and can be paired with Freddie's affordable products. Which of the two conventional options prices better on a given file genuinely varies, so we compare them rather than assume.
If you're building new rather than fixing something that exists, this isn't a 203(k) at all — it's a construction loan, and Michigan has conventional, FHA, VA, and USDA versions. Different structure, different draw process, different appraisal. Worth reading before you talk to a builder.
If you already own the home, have real equity, and like the mortgage you're sitting on, a renovation is usually a reason to borrow against equity rather than replace a good first mortgage. Keeping a low rate you already have is often worth more than the convenience of one loan.
Another route for existing owners with equity, and the simpler one when the work is modest and you'd rather not deal with contractor draws and a completion deadline. The trade is a new rate on the whole balance, so the math has to earn it.
Individual investors can't use the 203(k) — it's an owner-occupant program. If you're rehabbing to rent or to flip, that's DSCR or fix-and-flip territory, where the property's numbers carry the loan instead of your paystubs. Different program, different conversation, and one I have often.
If a house you like keeps getting written off because of the roof, the furnace, or a failed FHA appraisal, that's a financeable problem more often than people think. Tell me the property and roughly what it needs, and I'll tell you honestly whether a 203(k) is the right tool or whether something else fits better. No credit pull to have the conversation, and no pitch if the answer is no.
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