Posted on August 8, 2015 - 12:40 PM
by Natasha Hunter
Delayed Financing can provide some great options for cash buyers -
They can realize the benefits of a clean cash purchase, then quickly recover some of that cash for another use.
South Florida has more all-cash real estate transactions than most anywhere else that comes to mind. In earlier newsletters we've discussed the relative benefits and limitations of either paying cash or using financing to buy property.
Today, I'm going a little deeper into the mortgage planning aspect and discussing how Delayed Financing offers the best of both worlds. It seems almost custom-made for South Florida real estate markets.
Leverage - a basic principle of real estate investment; using
borrowed money to own property, increasing rate of return
and putting less of one's own cash at risk.
Liquidity - Money that would have been tied up in a property
is readily available as a reserve fund or for other use.
Diversification - another basic investment principle;
spreading exposure among different investments, reducing
Until a few years ago if a property was purchased for cash, the buyer had to wait a minimum of 6 months until a cash-outrefinance could be used to release some of that money and let it be put to other use.
Now, instead of waiting 6 months before being able to do a traditional cash-out refinance, a Delayed Financing refi takes place within 6 months of the original cash purchase - although it works best when done within 3 months.
Here are the rules for Delayed Financing:
- The 6 month time frame begins on the closing date of the
original cash transaction and ends on the funding date for the
- The original purchase must have been an "arms-length"
transaction, meaning that the parties to the deal are not related
personally or in a business sense, and have acted in their own
individual interests. The price paid can then be considered fair
- The HUD-1 settlement sheet from the original transaction must
show that NO financing whatsoever was used.
- Funds for the cash purchase must be fully documented,
sourced, and "seasoned". If the purchase cash is from a
HELOC or other cash-out on a different property, that
indebtedness must be paid off first from the DF financing
- The cash-out refi loan amount must conform to maximum LTV
ratios for a refinance transaction. The new loan amount can
usually include its own closing costs and prepaid fees,
providing that the LTV limit is maintained.
One of the more popular Delayed Financing scenarios here is
a 50-70% LTV cash-out within 3 months of closing.
It works with both primary residences and second homes, and provides a great balance of Leverage and Liquidity,
along with an attractive interest rate.
- The interest rate for the Delayed Financing refi must be
comparable to other cash-out refinances for similar LTVs and
transaction specifics. Rates for cash-out refis are usually
slightly higher than rates for purchases or replacement
- A title search must show that there are no liens on the subject
Those are the rules...why would cash buyers want to use Delayed Financing?
- Use cash as a negotiating tool with the seller, then take out
and reinvest some of it after closing and put it to work at a
higher rate of return.
- Borrow from a qualified retirement account to close a cash
deal, then repay that account quickly to avoid excessive fees
- Have the peace of mind that cash is in a more liquid
investment than real estate which can tie up funds until the
property is sold.
Delayed Financing is part of an overall approach I refer to asStrategic Financing, which is making sure that the loan program properly addresses a buyer's financial needs, goals, and future plans.
Putting together a deal using Delayed Financing requires a Mortgage Originator who understands your buyers' financial priorities, can communicate well with them, and get to the closing table within the allowable timeline. It's best to plan using it before the cash purchase is even made.
When you have cash buyers who could benefit from learning more about this program, have them call me early in the looking stages.
Let me reinforce the trust
your buyer has placed in you! sm
Information provided by Chris Carter. Please see his information below.
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