Purchase + Construction on Future Residence

[Scott Sloan]

I have been searching for a new home for my family (need a little more room), and I think I have found an off-market deal that might work for us. My plan is to do a cosmetic overhaul to force some serious appreciation, then move into this new house after it is renovated (while keeping and renting my current house). Things are still in flux, but I hope to get a purchase price of $420k and am considering two different renovations plans, one at $90k and one at $150k. The ARV could be as high as 700k with the 90k renovation. I am attempting to persuade the owners into some kind of great owner-financing deal, but they're a little hesitant, so I am not holding my breath.

When I'd originally begun this search (Feb 2022), I had found a local bank that would issue a construction loan for the Purchase + renovation costs, requiring 15% down and charging 3.95%, interest only for a year. I thought this would be great in the low-interest environment, where I could cash-out refi at a good rate after the renovation was done. I am now pretty concerned that this is a risky proposition, as rates could continue to climb in 6 months/1 yr during my renovation. I have found another lender who will do a one-time close, purchase plus construction, where I pay 10% down on the purchase price. This seems attractive because I would like to lock in a rate now, mitigating risk of rate increases

Two questions:

1. My ultimate goal is to be paying at or below $2,500/mo for the mortgage payments. Are there any creative finance methods y'all would suggest I explore? 

2. Does the one-time close option referenced above (with the 90k renovation option pasted below) seem reasonable/a good option? To me it seemed like the rates and closing costs were significantly higher than expected.