Our offer was accepted on a house with an 96.5% LTV FHA loan pre-approval.  Inspection is tomorrow.  I was planning on saving up to replace the ancient gravity furnace with a more effecient HVAC (maybe even geothermal) system in a year or two and getting rid of MI due to a higher value, but I just discovered I have to ride out the 5 years, regardless of LTV.  Our pre-approval was big enough to cover the cost of the improvements and the price.  Is it too late to switch to a 203(k) loan? 

KA,

I'm not an expert on the 203k's, but I can tell you that it's not too late to switch, just need to get over some hurdles first.  You'd need to re-do the purchase agreement and state that you're switching programs, which might make the sellers change their mind, since it's not as simple of a program as a regular FHA and could drag out the closing date.  You'll also need to make sure you're working with a broker/lender who has experience with this type of program, as there is a lot more involved to the process.  It's also an FHA product, so you'd still be held to the 5 year minimum for the MI. 

How much will the HVAC work cost?  If it is less than 31,500 (the 10% holdback brings you up to the $35K --the 203K Streamline repair maximum), you may be able to do a 203KS.  Those are much less involved than a full 203K, and, depending on who you go through, I can think of at least one wholesale lender that does not "up-charge" for the program as others do.

203k loans normally take a bit longer to be underwritten and close.  If time is of the essence, it may be a bit late to switch over.

Good idea to talk to the other parties here.  Sooner rather than later.  If the seller is working with a timetable in the contract, they may not like a curveball that could extend the closing.

You sound like a customer I just closed with last month.  When the inspection was done, we switched to a 203k to update the 1940's electrical system and did some other cosmetic stuff at the same time.  Seller understood, because I think they knew that the electrical system in the house really needed to be replaced anyways.  You can't get what you don't ask for.