Also commonly known as an FHA 203K rehabilitation loan. This loan can be used for a purchase or refinance for up to a four unit property.
As with any FHA loan, there is a lot of paperwork and rules, but then again, where else can you get an investor loan with limited down payment and a loan that you do not have to quickly try to refinance because of a high rate and balloon note (hard money rehab loan).
The 203k loan used to have a bad rep for being so burdensome with red tape and extra concessions that FHA had. Many of the steps must be done on any loan that you get to fix up a property. Almost anyone that has the money to lend on an investment property (typically very risky capital investment), will want to know a great deal about the property, what needs done to it, and more importantly how the borrower is going to be able to repay the loan.
As bad as the mortgage market is right now (Dec 07'), many private and hard money lenders who are used to the high risk, are very likely to tighten up the reigns on their guidelines.