I had an investor share with me today that he uses a construction loan to purchase and rehab his properties and then converts these to a conventional mortgage. He stated he can get the construction loan for 20% down at 5% interest only each month. The kicker that I can't figure out is that he says he gets back his 20% down payment made to get the construction loan when he changes over to the conventional mortgage loan? How is he getting back his down payment for the construction from the proceeds of the mortgage loan? We are talking about a 34k purchase with an additional 8k for repairs. Total construction loan $42k.
Some lenders will accept an 80% Loan to value after repairs and allow you to pull cash out. I have dealt with banks that didn't require you to have skin in the game other than making repairs. However, if the construction loan and conventional loan are with different lenders it is easier to pull cash out of the property as long as it is aged.
What is the typical length of time required until a house is considered 'seasoned'? Six months, a year?
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