Buying my first duplex - FHA 203(k) or Fannie Homestyle Loan ??

[Austin Mudd]

I'm purchasing a duplex and just went into contract. I will be owner occupying it to buy and hold long term. I want to do the Homestyle loan because PMI burns off. I also want to keep the loan as it will be a lower interest rate with a lower cash basis (rather than refinancing a year later and having to put up 20% equity).

The layout is weird (see below for description). I will most likely be putting $25-30k of work into it (as little as $15k).

With homestyle over $15,000 the bank requires a consultant. Over $35,000 FHA requires one. I have no idea if this is something i should absolutely avoid. My contractor has done FHA work but hasn't dealt with a bank consultant.

This is the current layout:

Unit 1 Floor 1: 1/1 - Rented @ $850 (unknown expiration)

Unit 2 Floors 2-3: 3 bed/1 bath. Vacant and needs full cosmetic repair (new kitchen, flooring, drywall, bathwork) 

'Basement' Unit: 2 bed/1 bath. This is above grade (not really a true "basement). Renovated bathroom already. Existing crap kitchen, needs new flooring, two exterior doors, and drywall. 

I want to live in the 'basement' unit while my contractor works on Unit 2 and I keep Unit 1 rented. Down the road 10-11 months later, I want to have a spiral staircase built that would combine the Unit 1 and 'basement' unit into a 3 bed / 2 bath unit. 

Afterwards, this will be the finished layout.

Unit 1: Floors 'basement' & 1: 3 bed / 2 bath 

Unit 2: Floors 2-3: 3 bed / 2 bath.

The ARV as follows in both situations:

Before ARV as Unit 1: 1/1 & Unit 2: 3/1 --- $250k (the basement space assumed will not be valued)

Finished ARV where Unit 1 is combined as 3/2 and Unit 2 is 3/1 --- $280-290k

I have no idea how I present my bid to the lender. I would like the tenant to stay to offset my mortgage, but then I probably will only get valued in the appraisal at the "Before ARV". If I include the Unit 1 combined situation, I will have to deal with getting two new tenants and then dealing with them when my 12 month occupancy period is over and I move. I'm not sure how to approach this best. Any recommendations will be great.