The 203(k) can be a very good choice, but it's not well-suited for a home that has not been completed. Very few lenders will touch that as there would be horrendous title issues amongst other things. Such homes are best left to well-funded contractors who are familiar with the issues involved.
My suggestion would be to look for other homes in need of renovation or you may want to look at HUD REOs with repair escrows that might be in your area - these are foreclosed homes now owned by HUD that are offered with as little as $100 down in some cases or the usual 3.5% down as with other FHA loans. Let me know if I can be of help!
Eagle Nationwide Mortgage Thomas.Stevens@ENMCdirect.com
FIrst, you need an approved contractor. The contractor must be familiar with the program and maintain certain insurance policies such as general liability and workers' comp. You can act as a contractor but must purchase these insurance policies. All sub-contractors must be licensed if necessary. Plumbers, electricians and furnace/air-conditioner techs must be licensed in Illinois.
As for the money, the contractor will itemize the cost of repairs and once the repairs are made the contractor will request the money from the lender. The lender will release funds after there is proof the reparis meet FHA criteria. For big jobs Draw Inspections (periodic payments from the lender) may be required, it depends on the lender. To ensure the repairs meet FHA criteria an FHA Fee Inspector will inspect the work, at your expense, and submit paperwork and photos to the lender. For large jobs that require Draw Inspections you may need more than one inspection.
You need to speak with a local lender. Bank of America operates almost everywhere, and they have a good renovation loan if you don't have to go FHA.