A Home Improvement Loan also know as the FHA 203(k) loan is intended if you plan to purchase a fixer-upper or need to make improvements to your existing home such as performing upgrades, repairs, remodelelings, or customize to the needs and wants of the borrower. The U.S. Department of Housing and Urban Development (HUD) insures mortgages through Section 203(k) which covers the purchase or refinancing and rehabilitation of a home that is at least a year old. A portion of the loan proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The cost of the rehabilitation must be at least $5,000, but the total value of the property must still fall within the FHA mortgage limit for the area. The value of the property is determined by either (1) the value of the property before rehabilitation plus the cost of rehabilitation, or (2) 110 percent of the appraised value of the property after rehabilitation, whichever is less.