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:
The property must be owned free & clear of any liens.
The initial purchase must be an “Arm’s-Length” transaction. In other words, it cannot be a sale from one family member to another.
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.
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).
The Refinance Cash-Out mortgage is restricted to 80% of the purchase price or appraised value (whichever is less).
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.
Naomi Schroeder, Processing, Closing Manager
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