@John Burtle
I'm not trying to be negative but this thread is brutal in terms of the amount of misinformation being spread (not by you). BP is a great community and I know everyone wants to help but this is how the complete spread of misinformation starts.
Okay end of my rant. = )
Here's how this works:
An FHA 203k Renovation Loan will allow you to purchase and renovate a primary residence with 3.5% down payment. Let's say the purchase price plus rehab costs bring your total price to $310,000. You'll put down 3.50% of that figure.
You'll have an Upfront Mortgage Insurance Premium added to your loan amount at closing and you'll need to pay .85% on a monthly basis for Mortgage Insurance (i.e. $310,000 * .965 = $299,150 * .0175 = $5,235 + $299,150 = $304,385. This is your final loan amount.
Your monthly mortgage payment will be based on $304,385 and will break down like this:
Principle & Interest: $1,366/month (assuming 30yr fixed at 3.50%)
Property Taxes: Depends on Property
Homeowners Insurance: Depends on Agency
Mortgage Insurance: $219.58/month (calculated like this: $304,385 * .0085 = $2,635 / 12 = $219.58/month)
After 6 months of owning the home you can do a "cash out" refinance with a conventional loan if you feel the value is justified. In this example if you think the home would then appraise for $450,000 you could cash out up to 75% (for a 2-4 unit property) or 80% for a single family dwelling.
You've then free'd up your ability to buy another home using the same FHA 203k Renovation Loan. OR you can use the money from the cash out refinance of the first property to put as a down payment on the new home so you can use a conventional renovation loan that doesn't have the Mortgage Insurance (Upfront or Monthly).
Even though I'm not licensed in Illinois the underwriter requirements are the same. I'm happy to answer any questions you have. If you have further questions send me a colleague request and I'm more than happy to answer any questions you have.