I'd agree that a 203k rehab loan is what you are probably looking for. It is an FHA product that allows a borrower to obtain additional funds, over and above the property's asking price. However, the funds must be directed to licensed contractors who have provided the underwriter with quotes for the work, ahead of time. 203k loans also require 2 types of appraisals, one for the value as the property sits, and an additional one that projects the property's future value after the improvements. The total amount of the loan cannot exceed the values that similarly updated homes in the neighborhood are currently bringing at market.
Most banks will err on the conservative side and loan lower than the purchase price of the home. That being said, there is a loan program called FHA 203K rehab loan, which will allow for a loan amount that includes purchase price plus rehab costs. It will not allow for extra funds to furnish the home, and you would still need to come up with the down payment plus closing costs. The other issue would be that the home's after rehab value would need to appraise for the neighborhood. If you would like some names and numbers of local lenders that have experience with this type of loan, feel free to contact me. I would be happy to help.
Amy Molea, Murney Associates