How to Use “Delayed Financing” to Be the Winning Offer

Including Other Methods Buyer’s are Using to get Their Offer Accepted

Dear Friends – to say that today’s housing market is competitive for buyers would be a huge understatement.  For the past 4-5 years now, we have seen homes in the first time homebuyer price points receive 20, 30 and upwards of 40 offers.  And there’s no end in sight.  Consequently, buyers have been getting creative in hopes of obtaining the upper hand and making the most attractive offer to the seller.

Some of these methods are, but not limited to: 

  • Waiving Inspections

  • Escalation Clauses

  • Appraisal Gap guarantees

  • Paying for some of the Seller’s closing fees

  • Committing to an Exceptionally fast closing date, such as 2-3 weeks from offer

  • Allowing for a Longer closing date, such as up to 60 days from offer

  • Allowing the Seller a longer possession after closing, such as up to 60 days after closing

  • Having your pre-approval issued by a Local, Experienced & Trusted mortgage lender

  • Offering “CASH” (or, the equivalent to “Cash” which can be “Delayed Financing”).

As a Loan Officer, I am not recommending any of the above to a potential buyer.  A buyer should rely on their Realtor’s guidance on how to structure the most competitive offer given their personal situation, the specific property, as well as the desires of the Seller.  Most buyers can work with most of the first 8 methods described above, but how do you compete with “Cash?”  Let’s face it, most buyers cannot compete with cash.  But … could you compete with being a cash buyer if the outlay of cash to purchase a new home were only temporary?  Temporary as in a very short term, as in a few weeks?  This is where “Delayed Financing” comes in.

Traditionally, a buyer would have to be in title for 6 months to get “Cash-Out” or “Cash-Back” mortgage financing.

Delayed Financing is the exception that Fannie Mae allows for a borrower to get a “Cash-Out” mortgage on their home prior to having to be in title for 6 months. Thus, if the buyer did have temporary resources to purchase a home for cash, they could immediately apply for a refinance that could get them 80% of the purchase price back in cash. Realistically, they could have 80% of their money used to purchase the home reimbursed within a few weeks. In some cases, when the money is provided by another party for the buyer to purchase the home (ie., parent or grandparent), a private purchase money mortgage and note can be executed and recorded at the initial purchase which may allow the buyer to finance more than 80% of the original purchase price.

It is imperative that if a Buyer plans to take advantage of Delayed Financing, that they speak with a mortgage loan officer in advance.  Especially before any large sums of money are moved.  The Fannie Mae exceptions for Delayed Financing require that the source of the money for the initial purchase be documented.  Therefore, whether the money is coming from a HELOC, a short term loan against a retirement account, a gift from a relative, whatever … the buyer should know in advance how to document the source of money so that a potential mistake on how it is moved isn’t difficult or impossible to reverse at a later date.

Here are Fannie Mae’s guidelines on Delayed Financing:

  1. The property must be owned free & clear of any liens.

  2. The initial purchase must be an “Arm’s-Length” transaction. In other words, it cannot be a sale from one family member to another.

  3. The source of funds for the initial purchase must be documented.  This is the important part to discuss with an experience Loan Officer before any money is moved.

  4. If gift funds are used for the initial purchase, a Gift Letter must be executed.  Since the funds are considered to be a “Gift,” the money is not to be repaid to the donor (see 3rd party exception below #6).

  5. The Refinance Cash-Out mortgage is restricted to 80% of the purchase price or appraised value (whichever is less).

  6. In cases where the funds come from a 3rd party such as a parent, grandparent or other, the 3rd party can execute a purchase money mortgage and note to be recorded at the initial closing.  In some cases, this would allow the buyer to finance more than 80% of the initial sales price while repaying the initial investor (or family member) who fronted the upfront money to purchase the home.

Obviously, Delayed Financing will not be an option for the majority of buyers; but for some, it’s just another way that you may get an upper hand in negotiating the most attractive offer to the seller.

Of course, where you get your financing will have a big impact on how strong your offer is viewed by a listing Realtor.   Despite the expensive and repetitive ads by the mega non-local internet based lenders, many if not most experienced Realtors might want to steer clear of some lenders in order to protect their client if they feel much more secure and timely financing alternatives are available.  Together Naomi and I have 60 years of combined lending experience in our local market.  Our pre-approval letters mean (1) No surprises, and (2) Fast closings.  Our pre-approval letter stands out and this has proven to be a huge advantage and deciding factor for so many of our clients getting their offers accepted over the years.

We are blessed to have so many loyal repeat customers and long term clients and we look forward to continued working relationships with all of you.  Many of you are more than customers or clients, but have also become friends.  We can’t thank you enough for your business, your referrals, your support and your friendship.

By Referral
Naomi Schroeder, Processing, Closing Manager
AL License #70043
FL License #LO44260
GA License #61221
KY License #MN421497
MI NMLS#319981
NC License #I-169039
SC License#MLO-319981
TN License#152088

By Referral 
Bob Hein, Mortgage Lender
NMLS 162989