Focus On Financing

Equity Cash-Out, The Delayed Financing Rule

cash-out-refiToday’s southern california housing market has presented many opportunities, but with those opportunities come many challenges. In this blog I want to address one of the largest challenges many buyers are facing today which is the amount of competition that lurks around each listing. Whether you’re a buyer, (first-time, move-up, or investor) you have or will notice the multiple offer environment we’re currently in. As you know, there are only two methods of buying a property… slap down a large amount of money or take out a mortgage. With the elimination of Fannie Mae’s 6 month waiting period for Cash-out Refinances, now you can do both.

If you’ve purchased property within the past six months whether it was for investment purposes or as your primary residence, you are now eligible for a cash-out refinance. Many of today’s wealthy homeowners and investors in some of the most competitive markets are using a method called Delayed Financing to contend with strong competition. Delayed Financing allows a homeowner who has recently purchased a home using all cash to take out a mortgage soon after closing. As a strategy, homeowners want the liquidity to either buy more property, restore their savings or to invest their money into higher paying investments. You don’t have to be a real estate expert to figure out that the market we’re in with the historically low rates and discounted properties is presenting a window of opportunity for middle class citizens to develop a healthy real estate portfolio. This portfolio can lead to a wealthy future and brighter retirement.

QUALIFYING GUIDELINES
  • The new loan amount can not be more than the actual documented amount of the borrower’s initial investment in purchasing the property, plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV, CLTV, and HCLTV ratios for the transaction). The LTV/ CLTV and HCLTV will be based off the lesser of the purchase price plus documented improvements or current appraised value.
  • The purchase transaction was an arms-length transaction (Buyer and Seller must not have been related by any means)
  • The purchase transaction is documented by the HUD-1, which confirms that no mortgage financing was used to obtain the subject property.
  • The source of funds for the purchase transaction can be documented (bank statements, personal loan documents, HELOC on another property), sourced and seasoned for two months. Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1.
  • All other cash-out refinance eligibility requirements are met and cash-out pricing is applied.

Note: The preliminary title search must not reflect any existing liens on the subject property. If the source of funds to acquire the property was an unsecured loan or HELOC (secured by another property), the new HUD-1 must reflect that source being paid off with the proceeds of the new refinance transaction.

WHO CAN USE THIS PROGRAM?

This program was designed for any borrower who paid cash for their property. For an investor, this program will enable them to cash-out the funds that were initially used to purchase the property to either expand their real estate portfolio by buying more property, invest their money in to investments that have a higher rate of return, or simply to replenish their savings. For a homeowner who bought their home to live in, the ideal strategy is used to increase their probability of their offer being accepted. Cash has always been and always will be KING. By submitting “cash offers” the chances of your offer being accepted over your competition is very likely. Once the home is owned they can turn around and mortgage the property and take back the funds.

I recently had a couple who purchased a home in the Rancho Cucamonga area for $358,000. This home was on the market for less than 5 days and received 7 offers comprised of both FHA and Conventional financing. After meeting with their Realtor, I advised my clients to submit an all cash offer in which they would get the money from a combination of a Equity Line of Credit (HELOC) that they had on their existing home and some funds they had saved. They ended up getting their offer accepted and closed 13 days later. I then began the process of refinancing their new home to get their cash back in order to pay off their HELOC and to replenish as much of the savings as possible.

OTHER NOTES ABOUT THIS PROGRAM

The max loan amount will be based on 75% of the value of the property, but no more than the initial funds that were used to buy the property plus closing costs, points, pre-paid fees.

You must meet all regular Fannie Mae guidelines including credit, assets, debt-to-income, collateral, etc…