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).  

They would explain that as the lack of an escrow account puts them at higher risk.The general term for the money you have to bring to closing for the escrow account is called "pre paids".  

Your loan officer can give you an estimate, but your total closing costs including prepaid insurance and taxes will run about 5-6%, plus your down payment.

So, if there is a balance allocated to the lump sum remaing to be applied to the month missing payments, based at fair market rents, you may be sunk as your pre-paid rents are your liability to provide housing.

you also need reserves when you buy a home. usually 3 months. in addition to down payment you will/may have closing costs (some programs allow you to roll those into the loan) and you will have "prepaids" such as taxes, insurance, HOA fees, etc.Sounds to me that you should opt for a little longer hold period.

Here are the numbersPurchase price : $170,000DownPayment : 20% conv. loanMortgage: 30 YrsVacancy: 8% (will vary)Closing cost: $9,851 (closing + prepaid reserves + discount borrower paid)Rents: $1,600 ( most likely)Property Taxes: $5,100 AnnualInsurance : $900 (Annual)Maintanance $ Repairs : $ 2,000 (est. cost of repainting)$500 ( More like HOA dues/yr)I will greatly appreciate your valued opinions on whether its worth buying or what exit strategy to use. 

That puts construction total costs in the $158k range.Now you list the house for $230k, and say you sell it at full ask, no seller prepaid money.  

Keep in mind too, the taxes are part of the closing process in most loans that you are using and thus have to be prepaid for the following year. 

Broken down ($1870 origination charges, $690 appraisal, $1350 title service, $416 tax, $484 prepaid insurance, $320 initial escrow, $360 home inspection and title insurance).

Cash to close is usually the down payment, points, any other lender fees, prepaid interest and insurance, and your standard closing costs.