Delayed Financing - How to Win in a Competitive Market

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Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141

Delayed Financing - Winning in a Competitive Market

 

What is delayed financing?  That's another topic for another blog, but the good news is that it's already written and you can find it by clicking here

 

If you're already familiar with the topic and the concept, you've maybe gotten some basic information but delayed financing could still be a mystery to you.  What are rates like?  How do I get the cash (and does it matter how?)?  Why does the program exist?

 

In today's market, we're seeing a strong demand for delayed financing, and that's usually the case in markets with low inventory, regular bidding wars, and cash buyers competing with first time buyers, move up buyers, and everyone in between.  In addition, with rates near historic lows, delayed financing makes more sense than ever!

 

How can Delayed Financing help you get a house in a Competitive Market?

 

Delayed Financing allows you the best of both worlds - a cash offer and financing to replenish funds.  This means you can compete with cash buyers/investors while only temporarily being out of cash.  You can purchase cash, close quickly, get a home in need of repairs up to par for an appraisal, then immediately get your cash back.  It's a win-win-win for all involved.

 

What are rates like?

 

Rates are higher than for a purchase-money mortgage, BUT, today's cash out refinance (delayed financing included) rates are typically only slightly higher than purchase rates, AND tend to be lower than the average return in the S&P 500.  What this means is that from a financial growth perspective, you'd earn more putting your cash into the markets with a good advisor than putting it toward a low-rate mortgage on an appreciating asset (a house).  The slight difference in rate is offset completely be a host of other advantages.

 

How long does the process take?

 

Delayed financing is just a type of cash out refinance, so the process from application through funding (when you get sent your money) is the same as any other refinance transaction.  A couple things to note, though, that must be accounted for:  the property must be owned for an appraisal/title to be completed, so even though you KNOW you'll be using delayed financing, you can't get too far into the process prior to making settlement and taking ownership of a house.

 

What are the benefits?

 

There are numerous benefits to delayed financing.  For one, offering cash for the purchase part of your transaction can help you better compete with cash buyers and offer sellers faster closings with less changes for your contract to fall through (did you know THIRTY+ PERCENT of sales contracts fall apart due to financing nationwide!?!?).  Of course, sometimes a cash offer will get a house for a lower price than one with a financing contingency as well in some markets.

On the other, less thought about hand, is that with mortgage rates near their historic lows, where is money best placed month to month?  In paying down an ever-appreciating asset strapped with extremely low rate debt with a long period of amortization?  Or toward equities that regularly see growth rates exceed the rate of debt attached to a mortgage?  Or, easier to understand, is your money best served in avoiding debt with a 2-4% interest rate attached to it, or by putting funds instead toward assets that will have a long term growth rate of 6-10%?  For me, I'd rather enjoy the 6-10% returns and the compounded interest that results from it, and continue making mortgage payments.  Delayed financing allows investors that option.  Cash is better served going somewhere else other than toward paying off a house, in almost every case (except for those few fortunate people where money/disposable income is no concern).

 

Where does the money come from?


One of the 'small print' aspects of delayed financing, is any money drawn from the process MUST go toward replenishing the funds that were used to make a cash purchase.

Use a HELOC to draw money to buy a place?  Then the delayed financing funds must pay that HELOC back down.  Borrower money from family?  You MUST have the loan documented, along with payment expectations and if necessary, installment payment information.  Gift funds?  That's a no-no.  Since gifts have no expectation of repayment, delayed financing cannot be used to compensate someone on 'gift funds' (because if you're paying it back, it wasn't a gift!).

But this aspect of delayed financing reminds people that you CAN borrow money from someone to buy a house cash, then use delayed financing to pay them back, in full or in part.  So for those of us not wealthy enough to write a check to buy a house, family and other debt instruments are options to acquire a house cash.

 

Whether it's to better position yourself financially, to win in a competitive market, or to accommodate the need for an extremely fast closing, delayed financing is a way for borrowers to leverage both a cash purchase AND mortgage financing without the standard 6 month wait required for most cash out transactions.  

 

For questions on delayed financing or anything else mortgage related, please don't hesitate to reach out at 484.680.4852 or ask an expert here.  This product can help Realtors sell more homes with less offers, avoid the heartbreak of a buyer missing out on their dream home, or create a simple way for investors to buy multiple properties in a short period of time without diminishing their capital.  

Comments (8)

Joe Manausa
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate

You really are an expert, John! 

Feb 02, 2021 07:08 PM
John Meussner

Thanks Joe, appreciate that.  Always working to promote products that work best in specific markets

Feb 05, 2021 10:21 AM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Great stuff, John. I'm embarassed to say this was news to me but certainly very important to know about given our market!

Jeff

Feb 02, 2021 07:28 PM
John Meussner

Nothing to be embarrassed about - there are tons of lenders and LOs that have no idea this is possible, it's just a small segment of a huge guideline book from Fannie Mae

Feb 05, 2021 10:22 AM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

I didn't realize that the cash out financing after closing would have a higher interest rate - thanks for the very important heads up!

Feb 02, 2021 08:07 PM
John Meussner

Yep, that's the one downside, but otherwise an easy process and .125 higher in rate doesnt matter if it's the difference between getting a house or not in a competitive situation :)

Feb 05, 2021 10:23 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope you have a great day.

Feb 03, 2021 03:05 AM
John Meussner

Thanks Richard!

Feb 05, 2021 10:23 AM
Brian England
Vacasa - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

This seems like such a great option for those having to compete with cash buyers for the limited number of properties that are active on the market.

Feb 03, 2021 04:10 AM
John Meussner

Exactly, Brian - it allows them to close quickly, keep contingencies minimal, and takes a lot of stress off

Feb 05, 2021 10:23 AM
Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

This was some good information for us to see. Everyone have a nice day!

Feb 03, 2021 05:50 AM
John Meussner

thanks Joe!

Feb 05, 2021 10:28 AM
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

This sounds like a great program that I didn't know about John. Thanks.

Feb 03, 2021 12:02 PM
John Meussner

Thanks Lyn, not many people do know about it but in the current market with competition being so tight more people should know : )

Feb 05, 2021 10:38 AM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Thank you for the education on delayed financing in such completely focused language.

Mar 09, 2021 03:01 PM

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