Answers

Boy I would not go that.  Hold off on the project until you have the money to do it right.  Then, pull off the formica, repair the water damage and install new countertop

Phililp

HDR Remodeling

For what you will spend in time and effort on this type of repair, I would suggest you look at granite as an option.  Many local fabricators are offering specials on material that (depending on your sq. feet) could be very close to what you spend on recovering in formica.

Hope this helps.

Our tile contractor installed tile over his with a hardwood stained bullnose and backsplash.  He went with an 1/8" grout line and used epoxy grout.  It looks great!

We used a product called GianiGranite. It is a DIY paint process, but covers the formica perfectly. The reviews i read said that you may need to do an additional top coat (seal) every few years if your countertops get scratched, but we loved the transformation. So affordable and turned out great!