You may have heard that buying a home in the Denver area under $300,000 is difficult; the market in that price range is highly competitive now. You may have also heard that cash is king; cash offers trump other offers because a seller knows cash is a sure deal. What if you happen to have enough cash to buy your new home, but don’t want to leave that amount of money tied up in your new asset? There is a solution. It’s called Delayed Financing (See page 216 of Fannie Mae’s Single Family Selling Guide.)
Delayed Financing is a Fannie Mae exception that allows the refinance of a property purchased with cash. The new loan will be the amount of the cash purchase plus the closing costs. The Delayed Financing Exception can be used up until six months after the cash purchase date and then it expires. A new loan must be closed and funded prior to the six-month expiration date.
Some of the highlights of this program are as follows:
- The original purchase must be an arms-length transaction (meaning that it does not involve family members, etc.).
- No mortgage financing may be used for the original purchase. This must be proved by the original HUD-1 Settlement Statement or a recorded trustee’s deed.
- There must be no existing lien on the new property.
- The source of cash used for the original purchase must be documented and sourced.
- The new loan amount can consist of the original cash purchase amount, plus closing costs and pre-paids.
Very Important:
For buyers with more than four financed properties, this is a super useful tool. (Note that the cash-out option is not available for buyers with more than four financed properties, per Fannie Mae guidelines on conventional loans). However, with delayed financing, a new home can be purchased with cash, and within the first six months that initial investment can be refinanced (plus the closing costs).
I cannot emphasize the importance of this tool for investors. An investor can buy a property with cash, and refinance the initial cash purchase amount, and then do it again, and again, up to ten financed properties, for conventional loans.
