There may be a chance that the FHA 203(K) may insure up to 110 percent of the improved value, this will all depend on the most recent home sales in your area.
The wet basement will need to be fixed as part of your rehab with the 203(K) loan. The property will need to meet FHA minimum property standards and part of the loan will need to go to repair the wet basement and any other system that does not meet the minimum standards.
I hope this helps and you can call me anytime and I will try to answer all of the questions you may have.
Ed's answer below is pretty good, particularly on the required improvements. The wet basement will have to be fixed with the other repairs.
Your maximum loan amount will be the lesser of the following two amounts: 1) the sum of your existing mortgage on the property, the estimated cost of repairs, and allowable closing costs, or 2) 97.75% of 110% of the after-improved, appraised value.
Basically, FHA will allow you on the FHA 203k loan to have a loan above the appraised value. So, if your house appraised for $138,000 again today, your maximum loan amount would be $148,384. Anything above that you can bring to the closing table to put into escrow.
It's hard to say in today's environment what value an appraiser will put on your repairs and updates.
Also, keep in mind, that your cost is not just the $50,000 in repairs, but with the FHA 203k loan there are other soft costs involved such as a contingency reserve (usually 10-20% of the estimated cost of repairs), FHA plan consultant fee, supplemental origination fee, permits, draw inspections and title updates, in addition to normal mortgage closing costs.
Call me if you have any questions. We specialize in the FHA 203(k) loan. Check out our blog at http://www.moneypress.com. We have several articles on the FHA 203(k) loan in the archives.
Senior Loan Originator
You have a 6 month period to have all work completed. Just make sure your contractor is on the approved list with your lender. The contractor must prepare a complete quote, as this quote is supplied to the appraisor, The contractor is paid through escrow.