Delayed Financing & Contractor Paid on the HUD1

[Daniel Donadio Jr]

I'm 80% through my first BRRRR in Indianapolis.

Prior to closing, I established with my lender that I would be buying the house for cash at a discount, paying the contractor at closing and recording it on the settlement statement, and then seek to cash out using the Delayed Finance through FNMA. Both my lender and I mutually understood and agreed that by paying the contractor at closing and recording it on the settlement statement, the delayed financing should get me my total investment back (purchase price + rehab), provided I meet the LTV based on the new appraisal.

Here we are: 2 months later, Rehab completed, and the lender is saying that FNMA will only allow the cash out based on my purchase price of them home. I can’t wrap my head around this. Their own rule does not say it’s based on purchase price, it’s based on initial investment, and since I prepaid for the rehab work at closing and it says so on the settlement statement, my initial investment is the total (purchase + rehab). The lender is telling me that he and his manager want to do the deal and they’re familiar with the rule, but Fannie Mae isn’t allowing it.

For further understanding:

Purchase: $45k

Rehab: $20k

Total: $65k

ARV: $100k

Fannie Mae will only approve a loan up to $48k and some change. (Purchase price + closing/financing costs).

Did we miss something?

My mortgage agent’s manager appealed to FNMA twice, he said they won’t budge on this.

Is there specific wording or some other work-around to try?

Any feedback is much appreciated.

Thanks in advance.