Cash-Out Construction Loan Newbie

[Thomas B.]

I am learning a lot on my 1st Investment property!

I initially purchased it as a 2/1 single family needed a complete gut job, using a HELOC from my primary residence with the enough left over to do a budget conscious renovation. Being a newbie, I underestimated some of the expenses of such a big project.

Navy Army Community Credit Union has approved me for a "cash-out" construction loan to finance the rest of the renovation, payoff my HELOC, and afterward will convert to a 15-year mortgage @ 8.65%. Will the bank pay off my HELOC 1st before funding the renovation or pay down the balance with what remains?

The bank is stipulating that I use a General Contractor from their approved list to handle the remaining work. The only quote that has come in yet is for $113K to have a brand-new quality house. She and her husband own a property management company, do general contracting, and flip houses. I know them personally and they do real nice work... maybe too nice for this neighborhood. I am getting other quotes, but they haven't come in yet. 

How does the After Repair Value play into the approval process for such a loan? At what point does the bank do an appraisal to figure the ARV? I think the square footage is way under quoted since the previous owners converted an attached garage to a master suite and built a mother-in-law suite in back of the detached garage. Without knowing the ARV, how can I tell if the outrageous renovation costs are worth it?

I can still cashflow. I just need financing. Everyone is still in Holiday Mode, including the GC's and the loan officer I am working with. He is out for another week, so I can't pick his brain. 

Any insight is greatly appreciated!