I have no current info, but I can relate that it is how I bought my house in 1998. From my experience, if you go that route be prepared for extra paperwork, having inspectors review the work to be done and the work that was done, dealing with contractors left and right, and just having it take extra time. There were, and I suspect still are, few lendors that will do these loans, plus few people that know how the loans work, so if the person that handles your mortgage at the bank takes a three week vacation there will be no-one to give you any info for three weeks (yes this happened to me - the bank stalled for a week before they would admit to this - go Wells Fargo ).

You'll need to itemize everything to be done, by whom, and for how much. Also, if you plan on doing any work yourself you will have to be extra determined as they will be suspicious of that and you'll have to convince them you can and will do the work (I did half the work myself). If that doesn't scare you off, and you're willing to live in a house under repair for months (or more), then this can be a very rewarding way to go. I was able to buy a house I wouldn't normally have been able to for a $3K down payment, and its now worth over $400K.

PhrugalPhan said:I have no current info, but I can relate that it is how I bought my house in 1998. From my experience, if you go that route be prepared for extra paperwork, having inspectors review the work to be done and the work that was done, dealing with contractors left and right, and just having it take extra time. There were, and I suspect still are, few lendors that will do these loans, plus few people that know how the loans work, so if the person that handles your mortgage at the bank takes a three week vacation there will be no-one to give you any info for three weeks (yes this happened to me - the bank stalled for a week before they would admit to this - go Wells Fargo ).

You'll need to itemize everything to be done, by whom, and for how much. Also, if you plan on doing any work yourself you will have to be extra determined as they will be suspicious of that and you'll have to convince them you can and will do the work (I did half the work myself). If that doesn't scare you off, and you're willing to live in a house under repair for months (or more), then this can be a very rewarding way to go. I was able to buy a house I wouldn't normally have been able to for a $3K down payment, and its now worth over $400K.

LOL - I've been told to contact Wells Fargo as well, apparently (as others have stated) very few lenders do the FHA 203k. The work required is relatively minimal (discounting the 'bringing up to code' aspect).
I originally thought the procedure was getting pre-approved for the loan followed by negotiating w/the owner (bank in this case) and if we agreed on a price, have the lender inspect it, getting a list of required repairs and costs built into the loan prior to closing. Following closing I would have a specific time period for repairs. Is that accurate?

And yep thats my motivation as well, the area I'm looking at I can only afford older townhomes and this is a newer SFH - the negatives being it has no basement and I have no clue how shoddy the work was (the previous owner did some of the work himself, not sure how much )

An FHA 203k loan is actually a very difficult loan to set up front. First find a lender that does them (I.E. Wellsfargo). The lender will want you to get a quote from a contractor detailing exactly what it is going to cost to do the repairs. I cant remember if FHA requires that a Licensed General Contractor has to manage the job or if a home owner can do it themselves. (Like I said these are suck a pain that as a lender I dont do them, not worth my time) Next you will submit repairs quote to an FHA 203k Inspector and he will look over your quote and scope of work and then inspect the house to see if you have enough repairs to bring the house to FHA lending approval. He can agree or say you need to do more. The FHA 203k inspector can be very expensive from what I remember they started at about $1000 and went up from there.

Then you will take your "Approved Costs to Repair" and show that to your appraiser. He will then add that in to current market conditions and give you a new appraised value on the after repair value of the home. As long as the ARV is enough to meet your Sales price plus repairs you should be ready to go. If not its a no go. This is a long process that the bank may not want to put up with on a foreclosure and you may be out a bunch of money upfront and then cant purchase the house. I am not saying to not do it but make sure you are really getting a really good deal before proceeding.

Did you say you were only speaking with the Listing agent???? First thing is to stop right there!!! A listing agent will not look out for you. You need a buyers agent to help negotiate for you and look out for your interest (i.e. market value and ARV of the house). This will cost you nothing. The seller is paying for all selling fees. If you dont use a buyers agent the seller still pays the same fee that the listing agent gets all of. Ofcourse they want you to work with them only because they get double the fee.

But as far as I know this is your only option in the lending market to do this type of home purchase at this time. Do expect higher rates than normal for FHA (.25% to .50%). There are rate hits for the lender to mitigate their risk.

And also understand what the FHA maximum loan amount is in your state. Here in Texas it is $272,000, your state could be higher.

PhrugalPhan: Would you happen to know how low of a price would seem worthwhile.

For the property I'm looking at they've currently listed the property for 500k (3000 sq ft, no basement) where a similar but fully finished property with 3500 sq ft with a basement sold for 600k. According to my realtor they might except an offer in the 470-480 range but to me thats still very steep for the risks I'll have to take and hassles to go through.

In the earlier part of this decade Renasant Bank had an in-house alternative to the 203k. It is (was?) much more lax than the 203k as far as contractors, doing work your self, etc etc. A relative used it to redo a house he purchased that had a fire. He did not want to hire a general contractor, which doesn't fly with the 203k. It seemed like a neat product - not sure if it is still around.

http://www.renasantbank.com/ - only in AL, MS and TN

I love hearing "not to code". You can't get a loan on this type of property. There's less competition and you can get a serious deal on it.

Their asking price is too high. If they are asking $500K then I think $300-$350K is the max you should pay. If you can you should really get a competent appriaser to give you and appraisal of before and after repairs. Also, make sure to put a contingency for inspections in your offer. An inspection is very crucial in a property with things not up to code.
I think getting a buyer's agent realtor is a good idea. Make sure the realtor is not lazy. If they do not go see the property they will end up giving you really bad advice.
If you check the FHA site for foreclosures in your area you should be able to get the name of a company that does inspections for FHA by looking at some of the reports. I have noticed that inspectors that inspect FHA properties area little more prepared int hat they are used to inspecting properties not up to code and have equipment and tools that allow them to still inspect