Rehab added to the closing for cash out refi

8 Replies

Hi all from Austin and surrounding areas!

Here me out and let me know what you think.

Most lenders only let you take out 75% of ARV up to the purchase price of the house.

I am looking to network with realtors and lenders who have added the rehab costs to the closing on a house to help with the process of cash out refinance of getting the cost of the purchase price of the house(cost of house + rehab). 

If anyone has done this before, I would like to network with you and ask more questions on how to do this process once you have a accepted offer on a house.


- David W

@Wayne Bolen

Sure, you put in a bid on a foreclosure on the MLS that's 20-50k under ARV due to some light to medium rehab work needed.

 then when you go to close you ask to put in the cost of the rehab into the purchase price of the home so lets say the cost of the house is 100k, but rehab is 20k, so you buy the home at 120k. knowing your going to do a cash out refi after rehab is done or right away, getting up to the total cost of the house at 120k. meaning instead of getting just 100k you get the 20k extra due to taking the extra mile of adding the rehab cost to closing. 


For starters, you haven't mentioned if you're planning to use a conventional lender or a hard money lender. 

Most of conventional lenders will not loan money for a rehab portion.

Most hard money lenders who loan of flips will (a) loan you up to 90% of the price you're paying (ie., you'll have to cover 10% of purchase price in cash + lender's costs + closing costs out of pocket), and (b) include 100% of the rehab budget into the overall loan balance. 

However, they will not give you cash in hands to do rehab at closing. It'll be set up as an escrow account and disbursed based on a schedule of completion, after inspections/approvals by the lender.

That is assuming your purchase price + rehab total falls within lender's max LTV based on ARV. For most it's 70-75%, some will go as high as 80% of ARV.

Once you rehab is completed, you could do a long term fixed rate refi for the entire balance.

I have done this many times, and I talked about it on my podcast episode 

The key for me was to use the delayed finance exception from Fannie Mae. 

the process is such: find a house under market value, when you add in rehab costs it should come to 75% of ARV. When you close the loan you put the rehab cost on the HUD and pay for it up front at the time of closing. Then when you refi you can get back 100% of the HUD cost with no seasoning period.

for easy numbers 

50k purchase 

25k rehab

pay 75k at closing 

ARV is 100k

loan is 75% or 75k (100% of your money).

now you have a deal with nothing invested, 25% equity, and cash flow on a 30 year fixed fannie loan. 

I've done the entire process in as little as 9 weeks 

@Jarrod Covey

yes I'm aware of that type of loan for purchase / rehab cost. I should have clarified at the start that the property would be bought with all cash(purchase price + rehab). Its why I would be doing a cash out refinance in the first place. That strategy can only be done for people who will be living in the property as a primary residence, correct? Ether way some people are able to do this. I just want to know how its done so I can replicate.  Its even been talked about multiple times on BP podcasts before. 

@Alex G.

No lenders have all the money yourself saved or with partners.

@Alexander Felice

Thank you, glad to talk to someone who has done it before!

I have listened to your podcast in the past and want to say thank you for sharing your knowledge on BP! 

Did you have to find a savvy realtor to work with who understands this type of strategy, and how do you convince the seller to be okay with adding the rehab costs to the closing?