You might want to check with local credit unions or community banks, as they’re often more flexible with second mortgages. 

Big 3 bank is going to just let this go. 

You can get the $20k from the bank day in and day out.

When you are dealing with community banks, they actually like to see diversified ownership. 

The bank is going to want to know that.

My concern is that if i apply for a HELOC to use for the down payment before i apply for a mortgage, A) I wont get approved due to my DTI ratio, and B) I wont get approved without first showing the bank I have the 20% down payment before pulling the HELOC.

I have a clause in the lease that says the security deposit will be held in so and so bank with so and so address and interest rate will be xyz.

The people that run these companies usually come from an "investment banking", real estate, or construction background.

Federal programs will require you to use GC/licensed folks for a lot of the work and they will get reimbursed by the institution that your loan is with; many GCs don't want to wait on the float time of requesting funds and getting them.Depending on the program and rehab/condition of the home, you may not be required to live in the home (think black mold remediation...bank isn't going to put you in a compromised position) however they may have min/max of when you need to move in.

You can do a subject to transaction but that is not legally assuming the loan.the banks got rid of assumable mortgage long time ago.