@Kim Coleman It's essentially a program started by Fannie Mae in 2011 to allow folk who purchase properties "all cash" to cash out refinance immediately and receive 70-75% ARV up to the cash purchase price. My plan would be to finish the rehab on my current property and cash out to use the capital to fund my next project. (See below)
What is Delayed Financing? How is it used?
What is delayed financing?'Delayed financing' is an exception to traditional cash-out refinance guidelines for conventional loans. It is a cash-out transaction involving a property that was purchased in the past 6 months. For those that qualify for the delayed financing exception, cash may be taken out from equity of a recently purchased property to recoup a portion or all of the funds used to make the purchase. This is a tremendous program for buyers with the ability to buy a home without using a purchase mortgage.
Delayed financing allows a cash buyer to remain liquid after making a purchase by mortgaging their newly purchased property, recouping their purchase costs to replenish funds or invest elsewhere. This is especially helpful in a competitive market where multiple offers are common, when cash offers are many times considered better than offers with financing contingencies. Another benefit is that buyers planning on using delayed financing can acquire a property faster than someone with financing contingencies or a lengthy mortgage process.
Sources for funds can come from cash or even lines of credit. A buyer wanting to use the delayed financing exception has the strength of a cash buyer, without committing all of their resources. The program is often used by savvy investors.
How it works?
Quite simply, a buyer purchases a home as a cash buyer. After the purchase is complete, the buyer applies for a cash-out refinance with a lender and can take out cash up to the amount used to purchase the home (plus closing costs).
Things to keep in mind
It's important to work with a lender and loan officer that's familiar with delayed financing guidelines because there are some potential pitfalls to avoid. Here are some things to be aware of:
- Keep a HUD-1 from the home purchase, the lender doing your refinance will ask for it. The HUD-1 is the easiest document to establish the costs of the purchase, and also verify that there was no mortgage financing used to buy the home.
- Renovation or improvement costs CANNOT be recouped with delayed financing. To recoup these costs with conventional financing, a borrower must wait at least 6 months after their purchase and meet all cash out refinance guidelines.
- The original purchase must be an arms length transaction to qualify for delayed financing.
- The original purchase must be well documented (assets used to purchase the home must be verified), and proceeds from the refinance must be applied toward the original source of funds.
Delayed financing is just one of many ways to go about financing the purchase of a new home and to position yourself as a strong borrower in a competitive market place.
