As this exuberant real estate market drives the housing sector, the chance to utilize home equity, may be a smart move. Rewind to March 2011, Fannie Mae lifts the guidelines surrounding the six month “hold time” (time holding title to a property) allowing cashing out of a recently acquired property.
The change has since allowed homeowners to acquire property and then immediately cash out refinance to replenish liquidity, purchase other real estate, do home improvements, pay off debt, etc. However, while the pitch sounds attractive, successfully sealing the deal on the Delayed Financing is something else entirely…
A Free & Clear Property
Property can a single-family residence, multi-unit property, condominium or PUD (planned unit development), *must be free and clear of any liens. In other words, no recorded mortgages on title. Essentially, you can pay cash for a house, then turn around and immediately do a cash out refinance without having to wait six months as previous guidelines required. In a competitive purchase market with multiple offers, this can be an advantage over other buyers using purchase money financing because the close of escrow can be days rather than weeks as the would-be competition lines up financing.
This is where things can get tricky. If you’ve have taken out a mortgage loan in the last three years, you’ll know the level of documentation and scrutiny underwriting gives to supporting documentation, as well as credit, debt, income and assets. Such is case with the delayed financing rule refinance, supporting documentation dictates your ability to get the cash or not get the cash, it’s that black and white.
Delayed Financing’s Musts
- Can access up to 70% of current appraised value or the acquisition price, whichever is lower. For example, price of the home $500,000, appraised value $525,000, 70% of $500,000 would be used, so the maximum loan amount would be $350,000. 70% is applicable to any occupancy status including primary home, second home or investment property.
- New loan amount cannot be more than the documented amount of the initial capital used to buy the property including; closing costs; prepaid fees (taxes and insurance) or associated discount points
- Rates are proportionately higher: a cash out refinance will contain a small margin due to the fact the loan is a “cash-out”, other adjustments could apply to other factors as well i.e. credit score, property type, but mainly occupancy, investment property is most popular on delayed financing.
- No relationship between buyer and seller on delayed financing loans, sorry gang, you cannot buy the home from your mother with cash then re-mortgage immediately. This would revert back to the full six month hold time. The relationship between the buyer and the seller, needs to be at what’s called at an “arm’s length.”
- If the original seller of the property was an entity such as an LLC, principles of the LLC must be documented with there authority to sign on behalf of the entity.
- The final closing statement from the recently acquired property must be provided, also called a HUD-1. This will support the fact no other liens were used to acquire the property.
Where Things Get Technical For Most Lenders Real Fast….
For the reasons we are about to provide, working with a lender extremely proficient in successfully closing delayed financing refinances becomes a must.
- Sourcing the funds used to acquire the property as previously stated is essential. What we mean: providing bank statements, personal loan documents, how the property was acquired with every dollar accounted will be needed.
- Gift monies are not permitted on the program- the technical component
Earlier we discussed, no recorded liens can be on title when applying for the delayed financing cash-out refi. While this remains, if you took out a personal loan to purchase the property, that can be acceptable so long as the terms are provided and the personal loan is paid off through the proceeds on the new loan being sought. Same goes for any other loans between parties used to purchase the property, they must be paid off through the net proceeds comes close time. The delayed financing refinance provides a window for people looking to keep their cash liquid while the same time conservatively leveraging real estate.
If you have a complex refinance scenario, been told you cannot cash out your free and clear home you just bought, give us a call 707 217-4000 or text. We offer a free, non-committal mortgage rate quote unique to your situation as well.