Cash out after rehab including rehab costs?

[Toben B.]

I paid cash for a property and the bank will only loan me the amount of the sale and not include the cost of the repairs and rehab on the property. 

My understanding is a bank will do a construction loan and then lend based on a percentage of the appraisal. 

I don't need to get more cash than I put in, but I do want to roll my repairs into the loan. 

My bank says I would have to wait six months. Do I need a new banker?

Thanks

[Albert Bui]

Originally posted by @Toben B.:

I paid cash for a property and the bank will only loan me the amount of the sale and not include the cost of the repairs and rehab on the property. 

My understanding is a bank will do a construction loan and then lend based on a percentage of the appraisal. 

I don't need to get more cash than I put in, but I do want to roll my repairs into the loan. 

My bank says I would have to wait six months. Do I need a new banker?

Thanks

 HI Toben,

This is the way it "is," with conventional loans. Some might say this is the only way is to wait 6 months. This is simply not true, but with conventional fannie and freddie loans it is. If you bought the property with cash you can only cash out up to 70% of market value or your cost as determined by your final HUD upon acquisition whichever is "lower."

This means your rehab is not able to be cashed out with a Delayed Financing Exception. 

The reason you have to wait 6 months is because after this seasoning period you no longer qualify for a DFE/Delayed financing exception and the property now reverts to regular conventional financing guidelines which is cash out up to 75% of market value if 1 -2 unit and 3-4 unit its max 70% cash out if you "own," 1-4 financed properties. There is no cash out on conventional financing for 5-10 financed properties (there are other ways, requires creativity).

Even after 6 months you have the issue of value unless if you have high enough comparable solds. I would also be cautious ordering an appraisal after buying way below market and fixing up the property depending how many comps you have and how high those comps are selling and their time on market prior to entering contract (momentum of the market). Appraisers are much much much more conversative on refi and cash out refinance appraisals. They do not do that 5-10% stretch in value to accommodate like they do on purchases so be wary to have solid comps for that cash out refinance when it comes around if you chose to still go with conventional financing route.