Take your time and weigh out all of your options, find a local agent who can help you 1 on 1 with answering your questions and at the same time show you what is available in the market today for both rentals and purchases.
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United Country Timberview Properties
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You'll need to sign up for a online forclosure service ($35-100 a month) like foreclosure.com, realtytrac.com or realquest.com or go to Bisbee to physically pick up the list. I'm sure a realtor could help you with this aspect as well since the list from bisbee only has the Parcel numbers (no addresses) and date of record (not the date it will be sold), so actually getting the info yourself without a realtor or paid service is rather difficult in our area.
As for your credit situation unless you have cash foreclosures will be hard to obtain since you will need to come with cash/cashiers check to the sale, and the bid starts at what's owed on the house.
A 203K is probably your best bet. Some other banks (around my area, typically the smaller ones) offer their own programs that combine rehab money and purchase money.
One other possibility, if the house is cheap enough, is getting a hard money loan for the purchase and rehab. Then you'd refinance with a conventional lender. A hard money loan is very expensive--around here it's about 5 points and 12% interest for a maximum of 6 months....it's the points that really hurt--but the loan is made on the after-repair value of the property. So, for example, suppose a property after repairs would be worth $500,000. A hard money lender will lend about 65% of the after-repair value, or $325,000. But if you can buy that house for $250,000, you'd have money for the points and for the repairs. You have the work done, apply for a conventional mortgage, get it reappraised at $500,000, and you're fine. (Some lenders might have a problem with seasoning, but that's a different issue.)