911 Home Inspector did a great job of answering and detailing some of the specifics regarding the rehab in a 203(k) loan. It is very important to go with an experienced lender if you are planning on using the 203(k). At Ardain, we have been regulary closing these loans for over 10 years. The owner of our company blogs on the 203(k) from time to time. You can read his entries here: http://www.richardhartian.com/.
Also visit HUD's website for information: http://www.hud.gov/offices/hsg/sfh/203k/203k--df.cfm
You can find HUD-approved lenders in your state that have recently closed a FHA 203(k) loan at: http://www.hud.gov/ll/code/llslcrit.cfm
Hope this helps. Call me or email me anytime.
Ardain Mortgage Corp