San Diego · Member since 2019 · 18 posts · 7 votes
Is there an allotted time that must pass after a cash purchase of property to finance out into a traditional loan? My lender is saying 6 months and I don't feel this is accurate. I dislike having that much capital tied up for 6 months on a 1 month B.R.R.R.R., especially with rates being so low right now. Thanks everyone for their time in reading and hopefully responding to this question.
@Joshua Zdunich sometimes these concepts are difficult to explain in a forum setting. I wrote a pretty lengthy article on this subject (and how to avoid it) that you can find HERE. Now the first 2 sections will explain the restrictions that you will face...hopefully those will help some with the understanding of it. But I'll also try to sum it up here in 2 scenarios
Scenario #1 - SFH ARV = $200k, Purchased for $180k (which is a pretty good deal) in cash. No rehab. In this scenario you would calculate the 2 choices you have:
Purchase Price = $180k
75% ARV = $150k
So the LOWER of the 2 options would be $150k. That's how the delayed financing exception works in that scenario. Let's examine a different scenario...
Scenario #2 - SFH ARV = $200k, Purchased for $100k, Rehab of $80k. So the same out of pocket expenses to you....but here the loan is VERY different:
Purchase Price = $100k
75% ARV = $150k
So the LOWER in this scenario is $100k....that's what you would be limited to in the first 6 months in this scenario. And that's a big difference. The lower of the two options is what the delayed financing exception allows. Hope this makes a bit more sense.
You can apply while purchase in process and do delayed financing. Valuation is the problem as recent purchase price is the willing buyer and seller. 6 months not needed
@Joshua Zdunich by "traditional" loan I think you mean a "Fannie/Freddie" type of loan - or a "Conventional, Conforming" loan as they are sometimes called. In the Fannie/Freddie world you are allowed what is called a "delayed financing" exception. Meaning, that you may not take cash out of a property within the first 6 months....with the exception of "delayed financing". The formal rule to this (and not every lender will do this - so your current lender may not do this at all) is that on a single family, investment property you can a loan of either your purchase price + closing costs (at the time of purchase) or 75% of the After Repair Value - whichever is LOWER. So whatever the math comes out to in that scenario, you take the lower option in the first 6 months. I hope that makes sense. But let me know if you have any other questions about it. Certainly here to help in any way.
Is there an allotted time that must pass after a cash purchase of property to finance out into a traditional loan? My lender is saying 6 months and I don't feel this is accurate. I dislike having that much capital tied up for 6 months on a 1 month B.R.R.R.R., especially with rates being so low right now. Thanks everyone for their time in reading and hopefully responding to this question.
If you just want to get your cash back out, no, but if you want to use the appraised value because you think you bought the property under market value or if you've done repairs to the property and want to use an appraised value that's higher than the purchase price, you have to wait the 6 months for conventional financing.
Thanks for all the info! I did mean "conventional loan" "not traditional". Correct me if I'm wrong... from my understanding of your responses... With "delayed financing" I can pull out up to the the cash purchase price of the home without a time restraint? So this would work if I added an additional lets say 25% in forced appreciation, I could pull out my original investment and and leave 25% of equity in property to avoid P.M.I.?
Thanks for all the info! I did mean "conventional loan" "not traditional". Correct me if I'm wrong... from my understanding of your responses... With "delayed financing" I can pull out up to the the cash purchase price of the home without a time restraint? So this would work if I added an additional lets say 25% in forced appreciation, I could pull out my original investment and and leave 25% of equity in property to avoid P.M.I.?
No, you won't get the forced appreciation. You have to go off of the purchase price if you want to refinance within the 6 month window.
@Joshua Zdunich sometimes these concepts are difficult to explain in a forum setting. I wrote a pretty lengthy article on this subject (and how to avoid it) that you can find HERE. Now the first 2 sections will explain the restrictions that you will face...hopefully those will help some with the understanding of it. But I'll also try to sum it up here in 2 scenarios
Scenario #1 - SFH ARV = $200k, Purchased for $180k (which is a pretty good deal) in cash. No rehab. In this scenario you would calculate the 2 choices you have:
Purchase Price = $180k
75% ARV = $150k
So the LOWER of the 2 options would be $150k. That's how the delayed financing exception works in that scenario. Let's examine a different scenario...
Scenario #2 - SFH ARV = $200k, Purchased for $100k, Rehab of $80k. So the same out of pocket expenses to you....but here the loan is VERY different:
Purchase Price = $100k
75% ARV = $150k
So the LOWER in this scenario is $100k....that's what you would be limited to in the first 6 months in this scenario. And that's a big difference. The lower of the two options is what the delayed financing exception allows. Hope this makes a bit more sense.