Here is the wording from Fannie Mae: "The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value)."

Here is the thing You probably have about $2200 or so in closing costs from the title and attorney or escrow$1800 or so pre-paids,  taxes insurance etc.There usually is an underwriting fee from the lender of about $1000 and an appraisal fee.Keep in mind you will need a good faith deposit and if you are not qualified to inspect the house, you need (not required but very important) to pay an inspector, on this house probably $350.Then the question is, will there be points to pay to buy down the rate, or will you accept a higher rate and get a credit from the lender.

What about giving them prepaid cards that they just fill the cards?

You need to be clear that Tenant deposits, prepaid rent, lease agreements, original applications, move-in checklists, spare keys, and everything else transfers to you at closing.The leases remain in effect until expiration, even with the transer of ownership.

Obviously, I want to take out as much as possible, but seems like there's not much wiggle room.One thing that may give it a tiny bit of wiggle room is this section, taken out from Fannie Mae website:The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value).So if I spend 10K or something to buy down points to like 2%...

You'll also be responsible for some prepaids (insurance, property taxes, and prepaid interest).

I prepaid an annual Builder's Risk Policy with Luray Insurance.

So if I am understanding correctly, it'd basically be almost like a typical rental agreement PLUS the option, with them making a "pre-paid" down payment.

However, prepaid rent expense, interest and insurance are deducted only for the tax year they pertain to.DepreciationDepreciable basis of a property is undepreciated basis minus land value:Purchase price + major remodeling + improvements – land value – accumulated depreciation = Current basisFor this paper we will assume all properties placed in service before 1987 are fully depreciated.

However, prepaid rent expense, interest and insurance are deducted only for the tax year they pertain to.DepreciationDepreciable basis of a property is undepreciated basis minus land value:Purchase price + major remodeling + improvements – land value – accumulated depreciation = Current basisFor this paper we will assume all properties placed in service before 1987 are fully depreciated.