Paying cash for a house has its advantages. Purchasing with cash rather than getting a mortgage could help you as the buyer win a bidding war when buying a new home. You may even be able to negotiate a lower price on the home if you’re paying cash.
After all, cash in hand is a sure thing, and a mortgage approval can take some time and isn’t always guaranteed.
Delayed financing is a specific program that allows the buyer to take cash out on a property immediately in order to cover the purchase price and closing costs for a property they had just purchased with cash.
How Delayed Financing Works
Delayed financing is a mortgage that is originated on a property after you already own it, in comparison to a typical mortgage that is used for the acquisition of a property. The delayed financing mortgage option allow buyers to compete with all-cash buyers when purchasing the property.
By financing the property after the initial cash transaction, the borrower/buyer is able to regain their liquidity because the money isn’t tied up in the house after the delayed financing is completed.
Keep in mind that the value of the property might not the same as the purchase price. Borrowers will need an appraisal done by their new lender to determine the value. Moreover, your new loan can’t be more than what you paid for the property plus your closing costs and lender fees.
Why Delayed Financing?
Delayed financing is generally helpful for:
- Investors who want to compete with all-cash buyers’ short timelines
- Investors who want to have more bargaining power because they’re paying with cash
- A property that has multiple offers and the seller doesn’t want to wait on financing
- Investment properties, vacation homes, and primary residences
- An investor who wants to take their cash out and buy another investment property
The primary reason to utilize delayed financing is that buyers can stay liquid. Investors use delayed financing to recover their cash and be able to purchase another property.
Generally, delayed financing is right for an investor who wants to take advantage of all of the benefits of purchasing a home using all cash. They can often negotiate a lower price, close faster and compete with multiple other buyers. An investor who doesn’t immediately qualify for conventional financing may also opt for delayed financing.
An Investor’s Point of View
In this case, the buyer is an investor and purchases a property using all cash. The buyer then wants to free-up some cash back to buy another property.
The buyer can then delayed financing to recoup the cash and take a loan out on the new property, utilizing the cash back from the initial transaction!
A Primary Occupancy Borrower’s Point of View
The buyer can also use this option to compete with all-cash buyers and negotiate better terms. Delayed financing can be done as quickly as three weeks after purchasing the property, which is different from a standard “cash-out refinance” transaction, where the borrower must wait six or more months.
How Long Do You Have to Wait to Refinance?
If you’re doing a delayed financing transaction on a property you purchased in the last 6 months, you’re allowed to take cash out immediately without any waiting period.
Under normal circumstances, if you bought a home with a mortgage instead of cash, you have to be on the title at least 6 months before you can take cash out and refinance your home, so delayed financing is a notable exception.
Delayed Financing Qualifications
There are certain qualifications that need to be met in order to qualify for a delayed financing transaction. Most specifically, the property must have been originally purchased using all cash.
Lenders generally have the following qualifications for this type of transaction:
- Arm’s Length Transaction: You can’t be related to or have a personal relationship with the seller
- Closing Documents: Closing statement from the property purchase
- Proof of Funds: Showing where you got the funds to purchase the property
- New loan amount can be no more than the actual documented amount of the borrower’s initial investment in purchasing the property plus closing costs.
- Appraisal: Ordered by the lender and paid for by you, generally $500-plus
There can be more needed and other regulations may apply, but these listed above are most standard.
Although you may have just ordered an appraisal when you originally purchased the property, as mentioned previously, the lender will want to conduct their own appraisal before they approve your loan.
It would be my pleasure to help any borrower with a delayed financing transaction, so don’t hesitate to reach out to me for more information or to get started!