Big Cash Offer then refi on other side… how hard is it?

Question

Hi everyone!

So I’m in the very competitive market of Utah and I found a property for 550k that has potential to build equity in (by adding 2 beds and baths) and will rent well once we move on. It’s also a beautiful property.

It’s been on the market one day, and already has five offers. None of them cash.

Me and my girlfriend really see its potential, so we offered 575k CASH OFFER. Now, this is literally every piece of floating cash I have right now (the rest of my money is invested in stocks, equities) and its very important I get refinanced on the other side to get my cash back. Preferably in 30-45 days.

Is there any reason to think I won’t be able to get financing on the other side of this cash deal, should they accept?

For context, I own one townhome worth 530k (370 loan), I have about 1.6 million net worth, my income varies widely as I don’t have a traditional job and often live off my dividends/interest, and i have a credit score that floats between 690-720. I would obviously push to get that score up.

I qualified for the prepurchase @ 10% down, and that’s what I would want to finance on the property on the other side (90% of purchase price).

If any of you have any advice, or this is a stupid idea, would you please let me know? I feel confident I can pull this off, but it’s a lot of money and I’ve never done this before. “You don’t know what you don’t know” as they say…

Thanks in advance!

William Hochstedler · Answer

Talk to your lender about Fannie Mae's Delayed Financing Exception. It allows you to pay cash for a property and do a cash out refi with no seasoning.  You can only take out the cash used for the purchase, so wouldn't get any benefit from forced equity.

Once you season the loan (usually 6+ months) you can do a rate-and-term refinance based on the new value (after you've improved the property).  You won't be able to take out any fix up costs unless you "borrow" that money as a second position loan.  If the borrower receives any cash at close it will be considered cash out and higher rates will apply.

If you're going to explore these kinds of things, definitely make sure you're dealing with a local lender who understands these products.

Casey Christensen · Answer

I dont think refinancing it will a problem. The only thing I would say is to check with the bank/credit union that you prequalified with on a 10% down and see if that will hold true on a refinance. I know with my out of state BRRRR projects that most banks in that area will do 75% LTV on a new purchase, but only 70% LTV on a refinance with agency debt. I also found that the fees on a cash out refinance are much higher than the fees on an initial purchase. So it may come down to your bank/credit union on some of those factors, but I would definitely check with them so you know what to expect. Best of luck!

William Hochstedler · Answer

There are a ton of products.  FNMA has loans up to 97%.  Your questions are best suited for your lender who can go through all the fine print to make sure you qualify.

I'm pretty sure that it will have to be your primary residence to get to 90% LTV though.

David B. · Answer

Awesome! Yes - it's going to be a primary residence and then we're going to rent our townhouse in Lehi.

Thanks so much William. Very helpful. And sorry I called you Logan... lol my bad.

David B. · Answer

Hi Logan -

My plan was to do Delayed Financing, as you suggested, and then Cash the cash refi in 6 months after the home improvements. So we're in sync.

What I'm wondering specifically is -

1) can i get 90% of the property financed in the delay scenario, as I only wanted to put 10% down?

2) How quickly can I get the property refinanced after close? I don't want all my cash in the property long.

Thanks everyone for your answers!

Jon Kelly · Answer

@David B. you have two different things to consider:

1. Can you obtain financing? - You will certainly be able to find a lender willing to lend. You already have a loan on your current home with a similar price.

2. How much financing can you obtain? - This is the more important question. The appraisal value is more important than the purchase price. In this crazy market we've seen plenty of properties that appraise for LESS than the purchase price. You need to look at comps based on the properties current condition. Do not factor in its "potential" or future value from adding 2 beds and a bath

Joshua Janus · Answer

Look at sales comparisons in the area and use other appraisal techniques to build up your confidence that it will truly appraise for what you paid for it, otherwise you'll lose out on equity you just bought when you go to refinance. If you purchase this property and literally have no money left over, you are just asking and setting yourself up for a disaster. I would advise having 6 months of liquid monthly expenses in the bank to be safe (PITI payments etc.).

Big Cash Offer then refi on other side… how hard is it?

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