Construction/Rehab Loans

[Dan Barman]

Hi. Looking at making an offer on my 1st property, an older (1900) single family in NY's Hudson Valley that looks like it needs a lot of interior work. Looks good on the outside but inside it's a MAJOR fixer-upper; slanted floors, ruined carpet, former tenants evicted and likely trashed the place before they left (it's disgusting). Looks like the damage is mostly cosmetic, house probably has good bones but won't know for sure until after inspection. We plan to rent the house for now and either move in or sell it in a few years. 

We've been pre-approved for a traditional mortgage that would cover the purchase of the property, but when I asked our lender about a construction loan we were told that if the property needs rehab to be livable (it does) there's no separate loan for this, and that what we would need is a different kind of loan altogether (203k) that would cover both the purchase and the rehab. She also said that this type of loan is much more expensive and suggested instead of putting 20% down like we were planning that we could put 5 or 10% down and have more money left over to rehab out of pocket.

My concern with going out of pocket on the rehab is that could be a lot of money tied up that could otherwise be invested in other ways. I'm also having trouble estimating numbers on a monthly payment for a 203k to run this scenario through pricing models (rental calculator etc.). 

Any advice from people with experience getting loans or going out of pocket to rehab older homes would be most welcome. What are some things to keep in mind when deciding to get a loan or go out of pocket. If we buy the property with a traditional mortgage can we get a rehab loan after the fact? 

Thanks!

-Dan