This report examines why use of the Federal Housing Administration’s (FHA) 203(k) renovation mortgage – a loan that allows homebuyers to buy fixer-upper properties – has fallen by 77 percent over the past decade. Drawing on
2024 Home Mortgage Disclosure Act (HMDA) data and 15 in-depth interviews, the analysis finds that structural and programmatic challenges sharply limit the reach of the 203(k) program: even as an aging housing stock and unmet repair needs make renovation financing more critical than ever.

First, the 203(k) program is not adequately serving the first-time homebuyers FHA intends to reach. Instead, the majority of 203(k) borrowers are 55 or older and rural communities in particular show extremely low or absent
usage. Second, demand for the program is undercut by unusually high denial and withdrawal rates: more 203(k) loan applications are withdrawn (41 percent) than successfully originated (36 percent). Third, borrowers face
steep structural barriers, including difficulty finding homes that both appraise and qualify for renovation financing, sellers who prefer faster conventional or cash offers, and lenders and contractors unwilling to navigate the program’s
complexity. Finally, a nationwide shortage of HUD-approved consultants (required for the standard 203(k) loan) renders the program effectively unavailable in many markets. Several states have only one or no consultants at all (such as North and South Dakota) and many consultants are aging out of the profession.

To address these challenges, the report offers several policy recommendations. FHA’s recent updates that raised the maximum “limited” 203(k) loan amount to $75,000 and lengthened repair timelines are important first steps, but broader reform is needed. Recommendations include expanding borrower and industry familiarity with the loan program through targeted outreach; expanding the HUD consultant workforce, particularly in rural areas; and linking home repair grants and programs with 203(k) financing to help bridge appraisal gaps that currently prevent loan approval in distressed markets. Finally, the report recommends piloting an expansion of the HUD Mortgagor program, a statutory program that enables qualified nonprofits and government entities to use 203(k) financing to rehabilitate homes and transfer the repaired home and mortgage to buyers