Rehab Financing
Please help with information on financing. We found a rehab (owner asking $120,000). Got an appraisal for $165,000. It will take approx. $40,000 to fix it up (mostly finish out the basement and update kitchen,paint and carpet). Can we offer the seller the full appraised value and use the extra to fix the house? How do we do that? my friend told us to get a contractor estimate and have him put a lien on the house for the difference and have a check cut to him at closing to take care of the rehab. Is that possible and legal? Thanks for your advice. 
if you have a house that is worth 165, you subtract the 120k purchase price, then the 40k for remodeling, you wil have only 5k, or about 10% of your remodeling budget left over for unforseen expenses (which I normally find to cost me much more).
Now consider you will be paying FULL RETAIL for a home that if you need to sell in the next 2 years you would have the honor of bringing a check to closing.
A much better approach would be for you to have the seller agree to pay for the complete remodel, base the home as 90 to 95% of the 'full appraisal" value (in your case try 150k)) and your builder will get paid from the closing just as soon as he can get the job done - you'll find builders can work much faster when the clearly know when they'll be paid!