I am looking to purchase a new house that is a local bank owned for about 120-125k, and needs about 25k worth of work. I am a first time homebuyer with no debt and great credit. The issue is that a traditional mortgage is not going to work because it is not currently livable. From what I understand is that a construction loan will not fly because it is not starting from scratch. A 203k FHA loan was recommended for me, but I hate the idea of paying PMI and a higher interest rate. I also heard that maybe a huge line of credit is the answer with the house I am fixing up as collateral. Is this possible? Any recommendations would be much appreciated.