Buying a home with Cash, what now?

[Brad Fausett]

So I found that it is going to be advantageous to me to purchase one of my new properties in cash, I am going to take a mortgage out in a few weeks later after some updates are completed to leverage the banks and keep my cash availabe for future purchases.   

 With this said, I have never bought a home in cash.  When I let my realtor know tomorrow this is my approach, how do I get to closing?  Do i need to call a title company or an attorney to do the work?  I have no experience other than working through a lender and showing up to the closing table to sign papers.   Can you advise?

[Andrew Postell]

@Brad Fausett clearing title is likely the only item you will wait on to close when buying with cash and the description of the title company handling the transfer of the cash is also accurate.  I would like to weigh in on the financing area AFTER you close.  I wanted to include @Natalie Schanne for this next part as well.

Conventional loans, those are the loans governed by Fannie Mae and Freddie Mac (if you recognize those names), will limit your initial cash out of a property within the first 6 months of ownership. Actually, the only method by which they even allow a cash out loan is if you did buy with cash. This process is called a "Delayed Financing" - when you buy with cash and then refinance to get the cash back out of the property. There is a really important rule when refinancing a home with a Delayed Financing transaction - you are limited to receiving purchase price + closing costs OR 75% of the After Repair Value (ARV)...whichever is lower.  So if you bought a home for $75,000, put $10,000 of work into the home, and the ARV is $90,000. Then the lower amount is 75% of the ARV, or $67,500, and that is what you will be limited to.  However, if you bought a home for $75,000 put $75,000 and the ARV is $175,000 then the lower amount is your purchase price + closing costs.  I hope you are following me on this math.  This rule is a conventional rule.  Meaning if any bank offers a conventional loan then they have to follow this rule at minimum.  Where it can get confusing is that banks are allowed to put MORE rules on top of this.  So if one bank says, this rules applies in the first 12 months for us instead of the first 6, then they are allowed to be more strict but not less strict.  Some banks will have no extra rules and some banks will have lots of extra rules.

However, portfolio loans, or loans governed by the bank itself and not Fannie/Freddie, can have an entirely different set of rules.  So in theory, they could refinance you at a higher amount and/or sooner.  But they could also have a significantly higher rate, be on a lower term (15 or 20 year loan), have prepayment penalties, etc. 

I hope this information is helpful.