"I couldn’t believe the kitchen was completely torn out," said Kara. The house was perfect for her family otherwise. "It’s was the location we’d wanted – but we couldn’t get financing."

Bad roofs, missing fixtures, holes in walls, all typical for foreclosed properties. Even buyers willing to fix houses have a problem – getting the financing to close, and paying for needed improvements.

"We didn’t have an extra $20,000 to pay for all the work."

FHA’s 203K program provides one loan to finance the purchase and the improvements. Escrow can close even if the property’s in bad condition.

Here’s an example:

$ 180,000 sales price of home

$ 40,000 cost of work to be completed

$ 220,000 total amount that financing is based on

With this example, the buyer would put $7,700 and finance $212,300. The 40,000 held for improvements would be paid out as work was completed.

"By the time we were finished, our house was worth over $300,000," added Kara. "It’s better than any house we could have afforded to buy."

What’s your first step? Get pre-approved for FHA Financing. When you find a house, you’ll have to get contractor estimates, then estimates from a HUD approved estimator. Be sure that the house will be worth what you’re paying for it, plus the improvements.

Once you’ve got contractor estimates, a HUD approved estimator reviews the estimates. Then, an appraisal is obtained, indicating what the value of the property will be after improvements are completed, and indicating the present "as is" value. In certain circumstances, when the total improvements are less than $35,000, the HUD estimator is not required.

Many buyers in today’s market are being outbid, or are losing out on certain homes due to multiple offers from other purchasers. Using the FHA 203K program often improves buyer’s negotiating position by putting them back in the position of being "the only buyer."

Keep in mind the program isn’t only for items needing repair. It can be used for adding a bathroom or a bedroom, or making certain other improvements.

Kara was amazed. "I didn’t even know this program existed. Now I’m telling everyone about it!"