Using an FHA 200k Loan to finance purchase and rehab.

[Cesar Escobar]

"Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home." See FHA Guidelines.
Situation:  

A couple wants to purchase a property in California (expensive). The idea is to be able to control a property without using funds which are being reserved for investing projects. This particular property is intended for the couple to live in it probably on a permanent basis. While researching the possibilities, the 203K, FHA Loan was discover.

Goal: To purchase a property in need of rehabiliation for about 450k and gain between 30 to 50K in equity once the property is brought to a "turn key" Status. 

Project Financing options: 

Conventional Loan:  20% ($90,000) down, (too much out of pocket money tight up in the project) Opportunity Cost is high.

Conventional Loan at 5%  ($22,500) down and  30, to 40K to fund the rehab.  Total out of pocket including closing cost 62,500

203K FHA Loan at 3.5 % of the renovated value of the property ($17,500) + Mortgage Insurace which can be refinance later.

Based on the information above, I feel that the FHA 203K loan makes the most sense for this project. Although there is the issue of mortgage insurance, the property can be refinance later on.

Your advise and thoughts are appreciated.