Delayed Financing FAQ

Delayed Financing FAQ

     In my original blog post about Delayed financing, I discussed the basics of this under-utilized and extremely beneficial mortgage exception that can be used extensively by cash buyers & investors to help with cash flow and to have the best of both worlds when it comes to the advantage of a cash offer, with the benefit of a low interest rate conventional mortgage.

     The response has been tremendous, and made me realize that not many people know about this program, and even fewer are using it - comments like "my lender didn't know what I was talking about when I asked about delayed financing" have been common, and in a market where up to half of the homes being sold are being purchased with cash, this conventional cash-out refinance exception should be at the forefront of programs being marketed.  So here are some FAQ's for the Delayed Financing exception offered on conventional loans:

1.  Is 'Delayed Financing' a type of mortgage?

     No.  Delayed Financing is an exception to conventional guidelines under the cash-out refinance program.  Traditional cash out refinance guidelines require a borrower to wait 6 months post-purchase before pulling cash out of a property based on a new appraised value.  Delayed financing waives that 6 month requirement for buyers who used cash for their purchase.

2.  Is delayed financing only available for primary residences?

     No.  In fact, delayed financing is used more often for investment properties and 2nd/vaction homes, although it certainly can be used for primary residence purchases as well.  Loan-to-value restrictions are the same as standard cash out refinances.

3.  I have more than 4 financed properties.  Can I use delayed financing?

     Yes.  Fannie Mae prohibits cash out refinance transactions when a borrower has 5-10 financed properties, UNLESS all the guidelines for delayed financing are met. 

4.  How long can I use delayed financing?

     The Delayed Financing exception is available to borrowers for up to 6 months after the settlement date of a cash purchase.  After that, standard cash out guidelines become applicable.

5.  What additional documentation is required for delayed financing?

     A HUD-1 from the home purchase is strongly preferred (required by Freddie Mac), but can be substituted with a trustee's deed and title indicating no liens against the property - some kind of evidence that no financing was used to acquire the property.  A paper trail for the funds used to purchase the property is also required.

6.  Part of my cash payment came from a HELOC or cash out mortgage on another property.  Can I use delayed financing?

     Yes.  If a HELOC or loan secured by another property is used to purchase the property, the proceeds from delayed financing must be used to reimburse that HELOC or be applied toward that secured loan.  Further, if the HELOC or secured loan are not paid off completely, the outstanding balance/payment must be factored into a borrowers debt to income ratios.

7.  I bought a home cash and did many renovations and upgrades.  Can I recoup renovation costs with delayed financing?

     No.  Only acquisition costs and closing costs/prepaids of the new mortgage can be financed with the delayed financing exception.  If you want to recoup renovation costs, you must wait 6 months and meet all other standard cash-out refinance guidelines.

8.  Part of my cash payment for the home purchase was gift funds.  Can I use delayed financing to recoup gift funds.

     No.  Gift funds are, as implied, considered a gift with no expectation of repayment, therefore, funds from delayed financing cannot be used to recoup a gift.  The portion of the cash purchase that WAS NOT a gift can still be recouped with delayed financing, with proper documentation.

9.  What is the maximum amount I can finance with Delayed Financing?

     A loan amount under the Delayed Financing exception can be no higher than the borrowers original acquisition costs of the property (including purchase price and any closing costs) PLUS closing costs and prepaids on the new loan.  Loan amounts/LTV's are subject to standard cash out guidelines and maximum loan amounts for conventional financing.

10.  Who should use delayed financing?

     In my opinion, under current market conditions of low rates, anyone that has the ability to buy a home with cash is a good candidate for delayed financing.  It's an excellent option for investors, to either regain liquidity for other investments, or simply manage financial plans where money could accrue better gains than tied up in home equity.

     The program is also great for investors or anyone else buying a fixer upper - a property that may not meet conventional appraisal guidelines can be purchased with cash & rehabbed, with the acquisition costs being recouped through delayed financing after the rehab work is completed.

     As industry professionals, it's our job to educate ourselves & our clients  - buying a home is a huge financial investment, and having knowledge of mortgage rules like those for delayed financing can help our clients maximize the financial benefits of a purchase.

     With nearly half of home sales being cash purchases, there is tremendous opportunity for those buyers to regain their liquidity, take advantage of mortgage tax benefits, and finance properties that need some rehabbing with conventional loan pricing.  So few people are familiar with the workings of the delayed financing exception - as professionals, it would be a good idea for us to change that.

Have questions about delayed financing or other mortgage options that can help cash buyers maximize the financial benefits of home ownership?  Give me a call at 484.680.4852 or ask an expert here.