Use HELOC and cash then conventional

[Rhonda C.]

Can anyone describe how they used their HELOC to buy a place outright and quickly, then turned around to get a traditional mortgage on the same property? Are there restrictions on doing that?

[Doug McLeod]

If you buy a property all cash (whether you got it from a HELOC, savings, 401k loan, or private lender), you can do a cash-out within the first 6 months under the Delayed Financing Exception for cash-out refi (search on the capitalized words). This applies to FannieMae loans. You are limited to purchase price + closing costs up to 75 or 70% ARV depending on how many loans you already have. The LTV will be based on appraisal. If appraisal is substantially higher than purchase (due to rehab or good deal), you may need to support the difference with documentation of work performed, but you can potentially get your full purchase price back out.

You can get a higher LTV without the purchase price limitation if you wait more than 6 months. However, you can only do this while having up to 4 mortgages. On mortgages 5-10, you can only do cash out if you meet the Delayed Financing Exception criteria.

Many lenders have additional rules that are more restrictive than FannieMae. Check around to find one that offers the best options FannieMae allows.