Look into a Wells Fargo Renovation Loan. This loan requires licensed contractors do the work, but they will lend you the entire amount as part of the first mortgage. The appraisal is completed using the information from the bids that are received from the contractors to determine the value of the home after the renovations are completed.

Look for a lender who can do 203K loans. This type of loan will allow you to put the cost of fixing up the home in with the mortgage. You will need a licensed contractor to do the work. As long as the house appraises for the cost + repairs, you know when you leave settlement you have the money to fix up your home.

I might suggest that you look at what the total project will cost in terms of the property itself, the fix-ups, additional financing and your time. This may be the ideal market to take advantage of a reduced price on a property that is move-in ready. I have run both scenarios quite a few times recently for my clients and generally speaking the “fixer uppers” do not come out on top. In an escalating market I think it becomes a much better option as there is a bigger discrepancy in price between fixers and something ready to go. I would be happy to run a few scenarios if you would provide me with more info on the type of properties you are looking for.

You really want to establish a relationship with a reputable lender who is able to provide FHA 203K loans. Not all lenders do that.

Lil Lively
Your Castle Real Estate
950 Wadsworth Blvd, Suite 120
Lakewood, CO 80214
Cell: 303-746-8827 Fax:303-265-9318
Email: Lil@TopProducer.com http://www.LilLively.com

I'm wondering what kind of fixing up the houses need. If you're talking about cosmetics, such as carpet, kitchen cabinets, counter, and appliances, yard, etc. that are ugly but they're actually in place, it wouldn't affect your loan. Then, you can go to Lowe's or Home Depot and get a credit card that usually will get you 0% financing for some time, often up to a year. (You might want to talk to their credit department first, so you know you'll actually be able to get enough credit. But you'll usually be able to get more after you own the house.)

If you're getting an FHA loan, they will want safety issues fixed before closing, such as railings on stairs, peeling paint on older homes, etc., but the previous answers may apply.

For more major work, the answers below are a great place to start. The loan that Ute describes below sounds like a good thing to me, but I've never done one. Haven't needed to yet because on those homes that need a lot of work and are priced right there are usually multiple offers, and the seller will choose the buyer that doesn't have an FHA loan because they don't want to deal with repairs.

Hi Leslie,

Although financing has become much more restrictive in today's world, if you have good credit and employment, you should have no difficulty finding construction loan financing to use when you purchase a "fixer-upper" type of home. Typically, you will need to have your fix-up/repairs approved by the lender in advance.

Lets say you are interested in buying a home for $250,000 and then doing a $20,000 home improvment on the home after closing. Assume you are putting down $25,000. At the closing the lender will loan you $225,000. Then as you or your contractor begin to purchase materials for the home improvment, the lender will advance you funds needed. The lender will want to see building plans for the home improvment and/or bids for specific types of improvments such as new carpet, new appliances if they were missing from the home when you purchased it. In other words, so long as you can prove to the lender that you are actually making improvments to the home on a plan that they agreed to, they will continue writing additional checks to cover the improvments and associated labor costs. The lender wants to be sure the home is actually being improved not that the borrower is just putting the extra cash in their pocket.

The lender would not approve such expenditures for such things as big screen TV, or media room equipment nor furnature.

Hope this helps. Let me know if you would like the names of lenders who would make this type of loan.

Best wishes,

Bill Kosena, ABR, CRS, SRES

Hello Leslie. You may want to consider the 203(k) streamlined program. I just answered a question that involved this kind of a rehab loan. Here's the link to the Trulia Voices thread. Please also look at the web reference mentioned in that post as it will take you to a site that explains the process pretty well.
http://www.trulia.com/voices/Home_Buying/I_m_seriously_inter…
Good luck to you.
Ute Ferdig