@James Palin Unless you're doing buy & hold, your purchase price needs to include the rehab, your fixed (buy & sale) costs and your holding costs, which would include your payments to the HM guy, while you are rehabbing.Example:   100,000 - 10,000 - holding costs - fixed costsIf I assume a 4 month hold and borrowing $70k at 12% and 4 points for the HM guy, my MAO would be more in the $55k range.I'm pretty conservative, but I think it's a reasonable number. 

The borrower owes a total of $170K, correct?  

I have borrowed from friends and family in smallish chunks (20-30k) and done second position liens up to 90% CLTV (so if my current leverage is 70k on a 100k house, I do a note and deed of trust up to 20k). 

What is the FICO score of the borrower?

Then you start rehab and as work is completed, you get additional disbursements to pay vendors....if the bank is smart, it requires lien release/waivers to make sure there are not any partial payments.If you run out funds before the work is complete, you pay the rest out of pocket or try to borrow elsewhere.  

Those typically let you borrow up to 70% of ARV.  

I spoke with one bank that did rentals but they had a restriction of allowing 2 loans per borrower when the property is a rental.  

Alternatively, you could take the deal your FIL is providing but a couple of things to consider: - at that point your relationship will change to lender & borrower & - your income should ideally also be increasing over the years (this is to counter your point about feeling like your timeline is pushed back to purchase your own forever home). 

Next search out the best deal, have some of us here on BP analyze it with you based on your goals and skill set. then Pull the pin. its quite simple. i would say the most important thing is to get your money figured out, how much you want to spend, how much you have to spend, and if your borrowing, from who, and what the best terms are. one of the best exercises i do is prepare a "Personal Financial Statement" it helps you understand your Net Worth, its kinda like your report card for a banker, it shows how responsible you are with money, regardless of your income.  

Banks will consider the size of the loan, the location, property condition, cash flow, borrower financial strength, experience, leverage and various other factors as part of their consideration.