Delayed financing is a method of financing that allows you to complete a cash-out refinance up to six months following a real estate purchase with cash. This financing option gives you the power completing a cash real estate transaction, and provides the option to quickly finance the home with a mortgage.
What is Delayed Financing?
Delayed financing allows you to utilize the leverage and quick turnaround of a cash transaction while still retaining the ability to obtain a mortgage. A normal cash out refinance requires you to be on the title for at least 6 months, but delayed financing provides an exception to this rule. In fact, you must do the refinance within 6 months of the purchase.
It feels fantastic to own a financial asset outright, particularly one as significant as a home, but many people feel there is a financial benefit to having that capital in their pocket. Whether looking to procure more investments, save as an emergency fund, or simply to keep in their checking accounts, delayed financing puts the cash back in your hands.
The way delayed financing works is that you purchase the home or property with an upfront cash payment. Immediately after closing up to 6 months following the closing date on the property, you can initiate the process of a cash out refinance. The refinance returns your cash investment to you without the typical fees of a normal cash out refinance. Instead of using a mortgage to buy the home, you essentially get the mortgage after you complete the purchase and recover most of the money you spent.
It is important to note that this is still a loan and you will pay for the home. When the process is complete, you will have a monthly mortgage payment, with interest on the loan. Delayed financing can be used on primary, secondary and investment properties.
Advantages of Delayed Financing
Bargaining Benefits: The nation is in the midst of one of the most competitive housing markets in history. Inventory is at an all time low which means that some home buyers are finding it hard to compete. A cash offer can often provide a valuable negotiating advantage. Cash offers are often preferable to sellers because then they don't have to worry if the buyer will get financing.
Speedy Sale: The turn around time of a cash offer can be quite appealing to a seller, so if time is tight consider utilizing delayed financing. There may be scenarios where you must close in a matter of days or are purchasing a foreclosure. The sellers won't have to wait the 30-60 days as the mortgage makes its way thru the process for the purchase.
Recoup your Cash: Real estate investors looking to keep their capital and homeowners who desire to have relatively immediate access to their cash may find delayed financing quite advantageous. Follow the cash home purchase you can recoup the cash (less the down payment and fees) to use in future business ventures or just have on hand as liquid assets.
Buy Some Time: If you find your dream home or perfect property but the home or your ability to get a loan needs a bit more time, delayed financing could come in handy. You can make the purchase with cash and use the 6 month window to repair your finances or bring the property to code so you meet the qualification standards of the loan. This route carries some risk, as 6 months isn't a lot of time to make big changes. Both you and the home must meet the qualifications for the loan to include pass inspections to complete the transaction and receive the cash back. Ensure you have thoroughly discussed this path forward with an experienced mortgage broker, prior to the purchase.
Potential Disadvantages of Delayed Financing
The basis of delayed financing is that you have to pay a large amount of cash upfront. The cash purchase transaction could deplete your savings or have your cash quite limited for months. In addition to this there are also a few other items to consider This could leave you with a depleted savings account or have you strapped for cash for months. Along with this issue, make sure you consider a few others.
Equity is Required: You cannot refinance 100% of the homes value. You’ll need to leave some equity in the home, which means some of your initial investment will be left in the home. Its a good idea to be prepared to leave more than 20% in reserves, which can help cover any difference in the appraised value and purchase price.
Cooling Market & Appraised Value: The housing market can fluctuate and if it isn't as hot in 6 months that may cause the appraisal needed for the new mortgage loan to come back lower than what you paid for the home. Therefore the maximum loan amount available could come back much lower than what you paid and you'll forfeit the difference in cost.
Rise in Interest Rates: Interest rates fluctuate based on a multitude of factors. Refinancing up to 6 months after the purchase, opens you up to the risk of getting a higher mortgage interest rate than was available when you purchased the home.
Loan Type: The only options for delayed financing are conventional and jumbo loans. FHA and VA loans are not eligible for delayed financing - which means in most cases you will have to keep 20% equity in the home.
Loan Qualification: The ability to qualify and complete the cash out refinance isn’t guaranteed. As with any mortgage loan, you must apply for the loan and the lender will need to review your income, assets and credit. Depending on your finances, there may be risk of qualifying.
Additional Documentation: Qualification for delayed financing also requires some additional financial and historical documentation. You must provide documentation showing where you got the money to purchase the home and proof that you paid cash for the home. Gift funds must also be accounted for and sourced, as well as a gift letter explaining that the funds received won’t be reimbursed with proceeds from the new loan.
Specific Requirements of Delayed Financing:
The total amount of the new loan cannot exceed the original purchase price plus closing costs, pre-paid fees and points.
There cannot be any liens on the property.
The sale must have been an arms-length transaction. That means you cannot purchase the home from a relative or have any kind of personal relationship with the seller.
A new appraisal must be ordered and completed as part of the delayed financing loan.
You cannot use any type of mortgage loan to purchase the property.
Delayed financing must be a cash-out refinance loan.
Will Delayed Financing Benefit you?
Delayed financing provides an option for aspiring homeowners, seasoned homeowners and real estate investors alike to regain control of their liquid assets. It provides an opportunity to initiate a cash out loan immediately after closing, to recoup their initial cash investment. When a home is purchased with a mortgage and cash out is desired, you must wait 6 months to initiate the loan process. With just over one-third of all home purchases being cash, delayed financing is a valuable tool for today's property investor or financially savvy homeowner.
Call the experts at Simplicity Mortgage today to how delayed financing could benefit your bottom line when making your next purchase!
Simplicity Mortgage is a mortgage brokerage located on Dulawton Avenue in Port Orange, FL.
Simplicity works with borrowers looking for for home financing in all areas of Florida area. Our service area includes Volusia and Flagler counties, Palm Coast, Ormond Beach, Ormond by the Sea, Deland, Daytona Beach, Daytona Beach Shores, Port Orange, Ponce Inlet, New Smyrna Beach, Orlando, Jacksonville and all surrounding areas of Florida.
Our lender portfolio is made up of 15 or more lending institutions.
This gives us plenty of options to find the most optimal financing option for a clients specific home or investment purchase.
Our goal is to provide a smooth and easy client experience combined with a great rate and low fees. We act as your reachable contact during the entire process. We have a large quantity of loan options available: Conventional, VA loan, FHA loan, USDA, Jumbo, Non Qualified Mortgage (non-QM), Self Employed, 1099, first time home buyer, investment, and secondary property purchases. We have outstanding loan options for your home refinance as well, IRRRL, Home Equity Loan, Streamline Refinance, Cash Out, Rate and Term.
Call Simplicity today to hear some excellent options for your home purchase or mortgage refinance. We will analyze your income, assets and debts to create your personalized preapproval amount. This is the maximum a lender is willing to lend. You also have to consider what monthly payment will comfortably fit into your budget. This will allow us to can calculate your maximum purchase price!
If you are looking to purchase a Primary, Secondary or Investment home, keep things simple! Finance with Simplicity Mortgage!