@Jay Chung I would say that is up to the particular lender.

The issues:-I wanted to put 50k down on the purchase, (lender will waive PMI with 10% down), and pay cash for the rehab and do part of it myself.

First year was fine on property taxes, and we were cash flowing great.  2nd year the property taxes went up and not enough escrow was taken out by the lender, so now they're trying to catch that up and predict the current year, so mortgage essentially went up $1000 monthly, thus killing my $500/m cashflow and making me a $500/m loss.  

Currently thinking a DSCR or Private money lender would be best bet.

Try the find a lender tab!

Once that is completed, then run the credit for those that meet the first round of criteria.You can double check but I have not heard you have to prioritize a Section 8 tenant, you just can't reject them because of source of income.

A deed of trust/lien position is a lender position right? 

You're proposing a very complex structure that may be hard for lenders and insurers to understand. 

Private money lender (a family member).

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?