Understanding Rehab Type Loans

[Scott Vaeth]

As a first time homebuyer and investor, I found a house that's in a great location and the comps are strong. Since it requires roughly $70K-$80k in rehab costs, I'm talking to a lender that offers what sounds like HomeStyle Renovation & CHOICE Renovation loans where I take out a conventional loan at 5% and have the renovation portion somehow tied to it. The loan they give me is based on the ARV, not the current home price. I will be following up with the lender to confirm.

Does it make sense to cash out refinance after the rehab is complete in 6 months to remove the existing PMI for only putting down 5%? I don't know if this makes sense since the rehab loan is based on the ARV.