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You can save a lot this way, but there are some things to watch out for. One of the biggest issues when buying a foreclosed home, is that the property hasn't been maintained, and there are often repairs that need to be done, sometimes major repairs. Other times the property could be in decent shape, but their are no appliances and minor repairs need to be made. The seller just wants to get rid of the home and they usually won't make any repairs. For most loan programs the house has to be in move -in shape before they will agree to lend on it. This can be a huge problem, but fortunately there is a solution, the FHA 203K rehab mortgage.

The FHA 203k rehab loan is a way to buy a home and finance all the repairs and improvements into your mortgage. Because this is an FHA loan, you can buy with as little as 3.5% down and roll all the repairs into the new mortgage. Using an FHA 203K mortgage is by far the least expensive and easiest way to finance a home that needs work.

There are two types of FHA 203K mortgages. One is a streamlined loan which covers repairs and improvements up to $35,000. You need to work with a good contractor and make sure your loan officer is experienced with this loan. This can be a quick way to take care of many repairs and improvements. You will get half the funds you need at the closing, and the other half will come after the closing when all the work is completed.  The other type of FHA 203K is a full or consultant FHA 203K. This can be used for more extensive work up to and including a full gut rehab. Because this is a bigger commitment you will want to work with an FHA 203k project consultant who will help coordinate the project and save you money. With this loan you can take a wreck of a home and turn it into a dream home.

Peter Thompson is a long time resident of the Chicago area, and has been a mortgage loan officer specializing in helping first time home buyers loans & Illinois FHA Loans since 1992.