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.
  
Delayed Financing helps cash buyers achieve greater :
  
     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
     overall risk.
  

 

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

  refi.

- 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

  market value.

- 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

  proceeds.

- 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

  refinances.

- A title search must show that there are no liens on the subject

  property.
 

 

 

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

   and penalties.

 

 - 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.

 

Chris Carter                               Mortgage Advisor / Originator 
239 898-5455 cell                                                                          NMLS 861361
  
  
  
  
Paramount Residential Mortgage Group, Inc
4375 Radio Rd
Naples, FL  34104
239 659-1660 office
 
Copyright Chris Carter 2015