Delayed Financing

Cash buyers receive many benefits when acquiring a new real estate asset, including more negotiation options and faster closing. Because most investors don’t want to keep their cash tied up in a property, they may consider delayed financing. Delayed financing lets buyers pay cash upfront to buy a new real estate asset and refinance the sale into a new loan.

Read on to learn more about how delayed financing works, including what loans offer delayed financing and how it differs from other loan types. We’ll also review a few important criteria that home buyers need to delay financing.

Consider contacting an experienced delayed financing loan provider to explore your lending options. Visio Lending offers a collection of loan choices that fit a wide range of buying types.

What is delayed financing?

Delayed financing is when a buyer uses cash to acquire a property and then takes out a mortgage loan to refinance. Delayed financing is typically in the form of a cash-out refinance, which allows the buyer to regain much of the cash reserves they paid to acquire the real estate asset.

Many real estate investors are cash buyers because this strategy allows them to negotiate the purchase price of a property better. By rolling the purchase into a cash-out refinance loan, they can apply the cash from the initial investment to a new project.

How does delayed financing work?

Delayed financing works similarly to any other mortgage, except buyers take out a conventional loan on a property they already own rather than one someone else owns. Since a cash purchase provides buyers with 100% home equity, they can receive most of the cash back through a cash-out delayed refinance.

What kind of loans offer delayed financing?

Delayed financing is available for conventional or jumbo loans. Currently, delayed financing isn’t available for FHA and VA loans. A personal loan is also usually not an option for delayed finance loans.

What kinds of property can be bought with delayed financing?

Delayed mortgages are ideal for most property types, but the maximum loan amount is equal to the home’s appraised value. Additionally, the delayed mortgage lender may require the borrower to make all repairs before completing financing. Delayed finance loans can be used for single-family, multi-family, condos, and townhouses. The most common use of a delayed finance loan is for investment properties such as long-term or vacation rentals.

Delayed financing isn’t usually suitable for a primary residence. While these buyers may be eligible, the interest rates and closing costs can outweigh the benefits.

What is the maximum delayed financing loan amount?

The maximum amount for a delayed loan can’t exceed the original purchase price or the home’s market value. These loans are also subject to loan-to-value (LTV) ratio requirements, which means the lender will require buyers to put a specific down payment toward the loan. Maximum loan amount limits may also vary, depending on the applicant’s credit score, down payment, and income.

Who is eligible for delayed financing?

Buyers who are interested in delayed financing may need to meet the following criteria:

• Buyers can only obtain mortgage financing for the paid purchase price of the home plus any associated closing costs or fees.
• The buyer needs to have proof that they recently purchased the home using cash.
• Buyers cannot use a delayed finance loan to return gift funds used to purchase the real estate asset.
• The sale must have been through an arm’s length transaction, meaning the buyer had no personal relationship with the seller.
• The property the buyer purchases through a cash sale can’t have any liens.
• Delayed financing buyers must still meet all mortgage loan requirements, which may include a good credit score, a specific debt-to-income ratio, a down payment, bank statements, and employment history.
• Fannie Mae and Freddie Mac require a 12-month waiting period before cash-out refinancing a property that was purchased using cash.
• The cash-out refinance applicant must own the property.
• Some lenders may require proof of an emergency fund for investment properties.
  

Who are all-cash buyers?

All-cash buyers are people who purchase an asset using only cash. This means they cover the purchase transaction price, taxes, fees, and real estate agent costs out of pocket.

This financing type may be ideal for the following cash buyer types:

Real estate investors 

Real estate investors typically experience strict competition when seeking the right investment property. They can purchase real estate through auctions or short sales by paying cash. Cash offers also allow buyers to close faster, which means they can begin repairs or renovations even quicker.

Empty nesters

Empty nesters or buyers ready to downsize may benefit from a cash sale. An empty nester may have generated enough money by selling their previously-sold paid-off home to buy a smaller home outright and avoid a mortgage. A cash offer can allow empty nesters to pay less when buying a new home.

Rehabbers

Obtaining a new mortgage loan for a property needing renovations can be difficult. Rehabbers may rely on cash offers to acquire properties in need of repairs. Once the rehabber makes those repairs, they can roll the purchase into delayed financing and apply that cash to another property in need. Delayed lending can also make it easier for rehabbers to acquire multiple properties within a short period.

Delayed Financing Exception 

The eligibility criteria for a delayed finance loan are similar to the requirements of a conventional loan. To qualify, borrowers must also show proof of a cash purchase. Delayed finance borrowers may need the following:

• Proof of arm’s-length transaction – Borrowers must show that they meet Fannie Mae eligibility requirements, that they are in no close relationship (business, family), and that neither has an advantage over the other.
• Document of a settlement statement – A settlement statement proves that the buyers didn’t use a mortgage when acquiring the property, helping to avoid tax avoidance schemes.
• Preliminary title search – A title search shows that the property has no existing liens.
• Bank statements – Bank documents show where the funds for the original purchase came from.
• Gift letter – If the original cash offer included funds received as a gift, the applicant must submit this along with their delayed finance application.
• Traditional mortgage eligibility requirements – Applicants will also need to meet all qualification requirements, including a list of other assets, income, credit score, and existing debt.
  

Delayed Financing vs. Cash-Out Refinance

While many cash buyers will use a cash-out refinance as a type of delayed financing, it’s important to note that each mortgage loan type differs. Here are a few key differences to know about delayed financing vs. a cash-out refinance mortgage.

• A traditional cash-out refi replaces an existing mortgage and pays the applicant the difference between the loan balance and the home’s value. A delayed financing mortgage instead gives the applicant the cash home purchase price minus any associated fees.
• Applying for a traditional cash-out refinance loan requires the applicant to wait at least 12 months from the original closing date. There may be no waiting period with delayed financing, allowing investors to grow their rental portfolio faster.
• A cash-out refinance loan typically requires a minimum 75% LTV ratio and maybe even higher with some lenders. LTV isn’t a consideration with delayed financing because the cash purchase means the buyer has 100% home equity.
  
  

  The Pros and Cons of Delayed Financing
  

  Understanding the pros and cons of a delayed finance loan can help cash buyers determine if it’s the right option for them. While cash offers typically have more negotiation power, they may sometimes be considered a high-interest debt. Let’s review the pros and cons of this financing option.
  

Delayed Financing Pros

Here are a few pros of delayed loans:

• Competitive offers – Buyers can take advantage of cash-only benefits, like more negotiation options and the ability to purchase homes in need of repairs or renovations.
• Cash asset repayment – After refinancing an all-cash purchase, buyers will receive a large portion of their funds back, which they can use as they please. Some people may use the money to make repairs, acquire additional real estate assets, or furnish the home. The money from a cash-out delay finance loan can also serve as an emergency fund for tenant repairs.
• No waiting to refinance – There is no waiting period for delayed financing. All-cash buyers can request delayed lending as soon as the property is in liveable condition.
• Fast sale – Buying a home with cash means you can close and begin work on the property faster. Delayed financing makes it easier for investors to get a property ready for sale or rent.
  
  

  Delayed Financing Cons
  

  Here are a few pros of delayed loans:
  

  • No guarantee – Buyers aren’t guaranteed approval for a cash-out refinance simply because they bought a home using cash. They’ll need to meet the lender requirements, and a poor credit score or low income could mean a higher interest rate.
  • Loss of some cash – Cash-out refinance buyers can expect to keep a minimum of 20% of their cash reserves in the property to avoid private mortgage insurance (PMI).
  • More fees – A cash-out refinance requires a down payment and loan closing fees. The refinancing fees may be higher than traditional financing.
  • Limited availability – Delayed financing is typically only available with jumbo or conventional loans.
    
  
  

Things to Consider Before Using Delayed Financing

Here are a few key things to know about delayed financing:

• Offer competitiveness – Cash buyers are often considered first before buyers using a mortgage.
• Financing timeline – Cash buyers can usually get a delayed finance loan immediately after the property purchase.
• Available cash – To benefit from a delayed finance loan, buyers will need a sizable amount of cash available.
• Rate increase potential – Waiting too long to acquire a loan after a cash purchase could increase interest rates, costing buyers more in fees.
• Title insurance – Buyers may need to acquire title insurance before taking out a mortgage on a loan they purchased using cash.

How to Apply for Delayed Financing

A short and not-too-detailed step-by-step organized as a numbered list. Buyers or investors can apply for delayed financing with the following steps:

1. Buy a home with cash

2. Research and compare cash-out refinance loans.

3. Apply for the loan.

4. Roll cash into a mortgage minus closing costs and loan fees.

5. Add payments to the monthly budget.

FAQs

Q: How do appraisals work with delayed financing?

A: Taking out a mortgage typically requires an appraisal, which is a professional market evaluation of the property. Cash buyers may not schedule an appraisal, meaning it’s possible that they could overpay. If an appraisal returns for less than the selling price, the lender will only issue a mortgage for the listed value.

Q: Is delayed financing considered cash-out? 

A: While delayed financing is often considered a cash-out loan, it’s not the same as a cash-out refinance loan. The requirements of cash-out refinance loans differ slightly with time restrictions.

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