I'd be more than happy to go over specifics with you on a 203k loan personally. I am with USA mortgage, and work with a lot of 203k loans.
To give you an overview, a 203k loan is a type of FHA mortgage. You need a 3.5% down payment of the total "acquisition" cost. In your example, the total acquisition cost would be about $135,000. When you go to settlement, the new loan would be for the $135,000 less down payment amount of 3.5%. You then get the $35,000 repair cost dispersed to you and your contractor as the repairs are completed.
Hope that helps answer your question!