Foreclosure/Rehab financing question

[Adam K.]

I am about to go to P&S on a sngle family home that is foreclosed and the house is not habitable. This is an investment property that I plan to rehab and flip. What is the best avenue for financing on a project like this? I have heard that because the property is not habitable as it currently sits, it prevents me from pursuing conventional mortgage. Although I would prefer to finance the project including rehab costs, I will probably just use a home equity line off my primary residence to fund it. However, I still need a mortgage to purchase the property. What are others doing? I am located in MA if that matters. Also, sorry if I posted this in the wrong forum, too many to choose from ;-)

[Mike V.]

Adam,
I have used construction loans on my last 3 flips. I have to pay 20% down on the purchase price but the bank then funds the rehab. It is a interest only loan for up to 1 year and I can refinance all of it into a conventional if the amount borrowed is still under 70% ARV. This means if I have bought right and I decide to keep it as a rental I have the potential to have 100% financing. Also the costs for the construction loan is way less than a hard money lender. I pay about 1 point in fees and currently am at 6.5% interest rate. Some contractors grumble about the hassle of the voucher system but when the alternative is not getting paid they come around.
I did my first couple rehabs by using a conventional loan to purchase and my HELOC to rehab but didn't like not having my HELOC as a safety net.