Finding funding - did I do this deal wrong?

[Chris Pommier]

So, it sounded simple. 1) Get a contract for deed (real estate contract / land contract / equitable title, whatever you want to call it) on the house we've been living in for years at a good discount from market and start paying the existing mortgage directly. 2) find a lender who would lend enough based on the equity of the home to pay off the previous owner's mortgage and put cash in my pocket for fix-up, 3) fix-up and upgrade the house from a 3/1 to a 3/2, 4) live in the house and enjoy until we're ready to move, then refinance, hold it and rent it out. Sort of an extended BRRRR.

Turns out that I"m stuck at step 2. I can't seem to find anybody to lend on the contract for deed, even though, once the deal is done, they'd be holding a first position mortgage secured by the property. A property that we've been paying rent-to-own payments on for years.

-----What I have:

Single family home in Santa Fe, New Mexico

contract for deed (or real estate contract or land contract or holding equitable title, but not legal title) to buy the property for about 95k.

House is probably worth, as is, about 189k.

We have moderate income and excellent credit scores, but little to no cash.

-----What I want:

A loan for 140k that will pay off the 95k and put about 40k in my pocket to add a small bathroom and do some other needed maintenance.

Fixed up and upgraded, it would probably appraise for closer to 250k.

-----The problem:

I've spoken to mortgage brokers, local banks and hard money lenders and I've yet to find someone who can help with this deal. Banks won't touch a real estate contract and hard money lenders only want to do typical fix and flips with quick money (one even has a rule that they won't lend on owner-occupied property. what?)

--

Anyway, I'm open to any suggestions. At this point I'm thinking the contract was a bad idea and I should cancel and just do a straight purchase and HELOC. Luckily it's a friendly deal with a relative.

So, any thoughts out there?

Thanks! 

Chris