Refinancing vs. Fannie Mae delayed financing? More profit?

[Ilona Davidovich]

A little bit of information regarding this deal,

I am under contract for a duplex at $148,000.00, each side is rented at $850 per side with section 8 tenants. Both tenants want to renew but one lease ends the end of May and the other ends the end of June. This property must be bought cash because it is through a whole saler and now I only have 1 week until the closing. I don't want to lock up so much cash in this because I rehab homes on the side and need the funds.

The appraisal was just ordered yesterday so I see that at this point I will not be able to do the delayed financing within a few days of closing cash.

So, my question is has anyone done delayed financing, is there a big chance itll fall through? Should I look into refinancing,even though I dont want everyone pulling my credit at once and throwing off my delayed financing in case it does work?

Another aspect of this is that I already have a mortgage on a rental property and am a realtor/investor so it is generally a harder for me to get a mortgage as I have other houses ...

Please help!

[Andrew Postell]

@Ilona Davidovich you asked some really specific questions here so let me address them one at a time:

• has anyone done delayed financing - yes, lots of times and with great success. Ask away and someone here can answer.
• is there a big chance itll fall through - Well, sort of.  If you aren't qualified it will fall through.  Get prequalified to find out.  
  
• Should I look into refinancing,even though I dont want everyone pulling my credit at once and throwing off my delayed financing in case it does work - yes, look into being prequalified and maybe even preapproved.  Find out now if it can work and if it can't for whatever reason then find out a good plan to get it to work.  Also, don't worry about "everyone" looking at your credit.  You can have a ton of mortgage companies look at your credit in a 14 day window and it will only count as one inquiry against your score and that's after the 14 day period is over.  If you do qualify, they can use that same credit report for 4 months. We always want to protect credit but having it pulled by banks that you have interviewed and feel comfortable with is ok.
  
• it is generally a harder for me to get a mortgage as I have other houses - Yes.  It gets a little harder each time.  With each additional home you purchase your foreclosure rate increases slightly.  There's lots of studies on this.  That's why some banks only lend up to 4 mortgages, or 6 mortgages...even though conventional loans allows 10 total mortgages.  It's because they want to limit their risk.  Same with "Overlays" (more on that below).  If you own 2 rental properties and you have them both rented out the main difference is that you will need to have a little bit more money left over in the bank (or your 401k) for reserves.  Every rental property you have you will need just a little bit more reserve money each time.
  

Now one thing I do want to address further is this concept of "Overlays".  Overlays are the extra rules banks put on top of Fannie/Freddie loans.  The conventional rule that govern DELAYED FINANCING are as follows:

• You will be limited to receiving back your purchase price + closing costs when you bought the home.....or....
• 75% of the After Repair Value(ARV) within the first 6 months of ownership....WHICHEVER IS THE LOWER AMOUNT <-- Super critical rule here

So let's practice. Let's say you buy a home for $70,000, put $10,000 into rehab, and the home is worth $100,000. According to the rule above you will be limited to receiving your purchase money + closing costs since that is LOWER than 75% of the ARV.

Let's try it again with the same numbers except that the home is worth $90,000.   Now you would be limited to receiving $67,000 because that is the lower of the two amounts.

So if someone states you can only get 75% of your purchase price...that is an overlay.  If someone states that you have to do it within 60 days...that is also an overlay. So its really important for you to find a lender that has no overlays, or at least very few.

HOWEVER, you can avoid ALL of these rules if you just create an LLC that lends a mortgage for you. I know that's a huge statement but for the sake of time I will end there. If you have additional questions ask away and I will continue to ellaborate. Thanks!