Building cash then financing to 75% of appraised value?

5 Replies

Hi BP,

I am a licensed contractor here in Alaska looking to build myself a duplex with lots of sweat equity. Lets say I can build it all CASH for $100,000 and it appraises $200,000. If I wanted to refinance this into a loan (to preserve my liquid capital) would the bank lend the 75% of what I put into it or 75% of the appraised value??? If they lent on appraise value wouldnt I walk away with more cash in my pocket???

@Wade Stahle Since you would be doing a cash out refi, you would be limited to 70% LTV for a investment 2-4 unit property, assuming the bank follows Fannie/Freddie guidelines. I would definitely talk to local banks first, as some may be concerned about the amount of cash you would be getting out. For a purchase or non-cash out refi, the max LTV would be 75%. All of this assumes a completed marketable house, not pre-construction valuations.

If you can find a bank that would allow you to cash out all the way to 70% LTV, you would walk away with more cash than you had into the project, assuming your numbers are correct.

Thanks Mike, so is it at least safe to say i cpuld pull all my cash back out? I actually wouldn't want to pull out anything more than i had in it

@Wade Stahle You should be able, at least based on the Fannie/Freddie guidelines.  But you will have to find a bank that will do a cash out refi on an investment property. I would not see any issues with you pulling out all of your costs.

It might even make sense to talk to a good local bank first, and let them help you with setting up everything now.  If needed, the right local bank could even help with the construction financing.

@Wade Stahle If its your primary, you could do a HELOC or a residential mortgage. I believe that both would be available up to 80% LTV, assuming you want to avoid PMI and other costs (maybe more). You could do a HELOC if your needs are shorter term, and this would save financing costs. If you needed later down the road, you could refi the HELOC into a residential mortgage.