Buying a house, not sure how to finance remodel.

[Juan Rodriguez]

My wife and I are buying the home we currently live in from her father. In its current state (3br 1 bath) comps are selling for $135k more than we're paying for it. A similar house that's been fully remodeled is currently on the market for $250k more.

We are are first time home buyers in the state of Ma with $10k saved for a down payment. We'd like to remodel the house and add a 4th bedroom and a second bath on the second floor. 

My question is how do we finance the remodel? We got pre-approved and the mortgage agent suggested a gift of equity, but from what I'm reading the max would be $50k or so and a portion of that would go to complete the down payment to avoid PMI. Do mortgage companies typically let people lump the remodel with the mortgage? What would our options be?

We plan to live in the house a few more years then hopefully Brrrr . Thanks.