I already have 1 payment from another tenant stuck in limbo, and they used s prepaid credit card so there is nothing I can do.

In short, I would consider doing this deal unless I had a better use for the $49,000 you will be investing.Closing costs for the purchaser are usually minimal (pre-paid taxes, title insurance, etc). 

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)."

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AllIf someone could explain, the prepaid reserves, why the difference in loan amount and purchase price, how to read those numbers.

You’ll have another 1000 or so in title fees and prepaid taxes and insurance.

On a side note, in Texas we can do anything and everything we wish to with a deposit or prepaid rent be it buy a boat or head to the casinos in Louisiana. 

Hi @Darren Mesibov,Actually, the rules state: "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)."

Be sure to separate out your pre-paids / escrows. 

The lender will not accept a contract requiring the seller to provide financing assistance, such as points, pre-paids and or closing costs to be paid by the seller Also, the lender will not allow the seller to pay for home warranties or any inspections to the property.