Purchasing with cash first and then obtaining a mortgage.

[Luke Boff]

Hello everyone I am looking for some opinions here. I have this opportunity to purchase a house that I intend to brrrr. My plan right now is to use my cash to purchase the property and then soon after get a mortgage in place to free up my cash in order to do the rehab. I wanted to know if this was a possibility and how smooth this process could go. Normally I wouldn’t do this but right now cash is king so I can get a better deal on the property with submitting a all cash offer.

Please let me know what you think! Thanks!

[Jody Sperling]

For the best financing, you want to "season" the property for six months after a cash purchase. Then you can work with the mortgage side of the bank and get better interest rates and higher refinance numbers.

However, I've done what you're looking to do on two separate occasions, and I'm in the midst of my third time. The trick is to find a financial establishment (usually a credit union in this case because credit unions tend to take greater risks) who will refinance without the seasoning period.

Expect to pay higher interest and get a mortgage product that has variability, usually at the five-year period, with nothing greater than a 20-year note. The problem you might encounter, and this happened to me once, is that if the house needs extensive repairs, the credit union or bank won't be able to give you the kind of value you want to complete the repair.

Be careful of using the cash and refinance to rehab method if the property you buy is simply so trashed a bank won't lend on it. Then you need to go hard money or risk running credit cards until the rehab is complete. (Done the cc thing too, and it's actually kind of fun once you get over the sleepless nights and perpetual heartburn and ulcers.) Best of luck!