Buying a forclosure cash with help from parents, then financing. Any complications?

[Shane Haas]

Looking at purchasing a foreclosure cash (with help from parents), and then financing the home shortly after renovations are made. 

3 questions: 

Are their issues with them giving me funds to assist with purchase?  

Will I only be able to mortgage the purchase price and costs, or will I be able to do a full cash out refinance and tap into some of the added equity of renovations? I do not want to wait 6 months-1 year to repay them. 

Can I leave them off of the original purchase since they are gifting me the money (6 figures) or do they need to be on the original deed and then when I get the mortgage remove them?

They would not be recording a lien or anything, just giving me the funds to purchase cash. I will have no problem getting the mortgage afterwards, I just have some other projects rolling at the moment that tie up cash.

Thanks!

[Robin Simon]

Quote from @Shane Haas:

Quote from @Patrick Roberts:

From a lender's perspective:

If the purchase is made via cash and without any liens on the property or funds borrowed against the property, your cashout options are:

A) Delayed financing within six months of purchase, which is treated like purchase money financing. It's based on the purchase price and will not include any improvements, reno, or increase in value since the purchase. This can be conventional or DSCR

B) Conventional cashout refi - will need at least 6 months on title if no mortgage on the property (I think - going off of memory), 12 months seasoning if there is any kind of mortgage/lien/loan with the property; will be based on improved LTV

C) DSCR cashout refi after six months of seasoning (most cases), and this will include any improved value of the property in the LTV

Most cashout refi's will be limited to 80% LTV. Also, for delayed financing, you may have to source the money used to buy the property. If it came from your parents, you may need a gift letter from them stating that it's gift and does not need to be repaid. A six-figure gift will likely have income tax implications. If it's not a gift, more documentation and explanation will be needed (are they also owners, is there a loan, etc).

A word of caution related to any kind of mortgage: if you get money from your parents and you plan to repay them, then it's not a gift. Do not use a gift letter/claim it's a gift if it's not a gift. If the money is yours forever and you dont have to repay any of it, then it's a gift.

Given that info, I would think it makes most sense to quickly do a delayed financing to recoup most of the initial investment, or if I am wanting to get back some of the renovations and such, I should wait the 6 months and do a DSCR cashout.

Really helpful info, thank you! Exactly what i was looking for

 The other commentators have added a lot of good info and value - I would chime in though one thing to look at closely is the property type - is it a true "log cabin" or more of a single family residence with "Cabin style" finishings? This is an ongoing tricky area for DSCR Loan refinances that is far from solved (although we are working on it!). If its a log cabin it might have trouble qualifying for the refi - would be smart to get some opinions early if that is your gameplan - would likely be a bigger potential hurdle than the gift/original purchase process