THE “DELAYED FINANCING EXCEPTION” MAY BENEFIT YOU1

WHAT IF YOU PAY CASH AND REIMBURSE YOURSELF LATER?

Some homebuyers would benefit from paying cash for a new home now and doing a cash-out refinance later to get reimbursed for the funds used in the cash purchase. Here are three examples where this strategy may be useful:

  • What if there’s a bidding war on the new home you want to buy, and a cash offer would help you win the deal?
  • What if you find a new home before selling your old house, and you can’t qualify for two mortgages?
  • What if you need to close on a new home quickly, and you don’t have time to wait for the mortgage approval process?

WHAT ARE THE LENDING GUIDELINES FOR DOING THIS?

Every lender has their own set of guidelines, but most lenders follow the Fannie Mae “Delayed Financing Exception” rules if the cash-out refinance takes place within 6 months of the original purchase date. Here are a few highlights:

  • The original purchase transaction must be “arm’s length.” This means no special relationship or business affiliation between the buyer and seller.
  • The original purchase transaction must be properly documented. This means a settlement statement showing the property was purchased for cash, and a title search showing there are no liens on the property.
  • The sources of funds for the original purchase transaction must be properly documented, such as bank statements, personal loan documents, or a home equity line of credit (HELOC) on another property.
  • The funds from the new loan must be used to pay off the original loan if the source of funds used to acquire the property was another loan (such as a HELOC on another property).
  • Gift funds used to purchase the property may not be reimbursed with the proceeds of the new mortgage loan.
  • The new loan amount can be no more than the actual documented amount of the borrower’s initial investment in purchasing the property. However, the closing costs, prepaid fees, and points on the new mortgage loan can be financed.
  • The maximum loan-to-value ratio for the cash-out transaction must be based on the current appraised value of the property.

WHAT’S THE NEXT STEP?

I recommend we have a brief 20-30-minute conversation to evaluate your options and whether this strategy might make sense for you right now. Contact me using the info below so we can get started!

Posted in blog, Tips and Tricks