Am I making a poor decision

[Chris Igard]

I found a home for 200K with a $120K renovation loan.  Between the contractor and myself we can address the issues with the home for $40-50K with the remainder going back into the principal of the loan.  The renovated home will appraise at $400k. The home is ahead of gentrification in a very nice area.  Most of the homes in the immediate area sell for between $500-$550k and double and triple the amount about a mile in any direction.  I went under contract with the plan of moving in and living in the home for 2-3 years and then renting the property.  As a primary loan it would cost 5% down with discount fees.  I was told the other day by the bank that it would be financed as a investment property and require 20% down with points.  This would deplete my savings and put me in a very tight bind.  Would it be smart to purchase the home and do a cash out refi in 3-4 months for the money lost with the down payment or just walk away.  The home loan would finance at $320K with 20% down bringing us to $256K.  The remaining amount of the unused portion of the renovation loan would go back into the principal at $70k.  This would bring the principal down to $186K. The renovations will take 3-4 months to complete but could be done faster if I work on more of it.  The goal would to be to cash out at that point once we move in.  Please help, thanks/.