EC: As you can see this is possible with the 203k.
Here are some more specifics.
You may borrow up to $30k more on the purchase price of this property with a transaction called a 'Streamline' 203k. It requires the same amount of documentation, but will not require the need for a licensed contractor or 203k counselor.
Over $30k, here is what will be involved:
-architect's plans for addition complete with a detail cost of materials being used (ie; windows, carpet, fixtures, etc (pay for plans to architect up front)
-apprasal utilizing the architect's plans to obtain a finalized value. You may borrow up to 96.5% of that completed value.
-intial work (demo, framing, foundation, etc) must be paid prior to the initial draw. These costs must be covered by contractor or yourself or other party as FHA will only fund completed phases (reviewed by FHA consultant)
-your work must be completed by a licensed contractor which cannot be any titled owner.
-work must be reviewed by the 203k contract consultant
Work can include additons and rehab. It may include rehab on a pool but cannot be used to build a pool.
Work may also include landscaping limited to demo and installation of irrigation.
When you write your contract, you will purchase the home at the price you bid, but the loan amount will be based upon the architect's plans and the appraised value of the finished project.
Your seller must be willing to work on an extened close of escorw date as the plans will take some time to complete.
Also, you must qualify for the final loan amount.
This is a great way to get very inexpensive construction financing without having to front load 30% investment from you!
Good luck. Sounds great!