Delayed financing to leveral family members cash

Cy Dale · 2021-02-12T16:50:25-08:00

I am a new homebuyer looking to purchase in AZ. I had a discussion about this with my lender but they didn't seem 100% confident in the answer they gave me. My question was regarding using a family members cash to give me a more competitive offer. I'd like to purchase the home in cash using the family members available cash and then immediately do a cash out refi to give the money back to them. I understand a cash out refi requires a 6 month waiting period following the initial purchase. But there is a delayed financing guideline that would eliminate the 6 month waiting period.My lender told me that my options were to A. have the family member provide the funds at closing as a gift and then wait 6 months for cash out refi or B. have the family member gift the funds to my account, season them, then do delayed financing.Essentially he told me that delayed financing is only allowed when the borrower is the source of the cash used to purchase the property. I cant find this information on the actual Fannie Mae guideline. I only see a note that gift money cant be directly reimbursed using the proceeds from the loan. So in that case I would just need to have the funds reimbursed to me and then gifted back to the family member. But I don't see anything about the borrower needing to be the original source of the funds. https://selling-guide.fanniema...I am trying to achieve this without having to wait 2 or more months for seasoning. Can you help determine if my LO is correct or mistaken?

Andrew PostellPro Member

Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes

5y

@Cy Dale well, it sounds like your loan officer is trying to find a solution here but it's not the right solution. You are buying a property with a loan....you may not have thought about it that way but that's essentially what you are doing. So if you wanted to have a loan/lien/mortgage filed from your family member then you will have ZERO SEASONING AT ALL. I wrote a post highlighting this technique for Bigger Pockets that you can find HERE. The 3rd step is the solution phase. Just substitute "LLC" with "Family Member". Now I wrote that if you were using your own funds but the concept is the same. Just about any title company can help you file the lien and then you can refinance right away. Hope all this makes sense but do feel free to reach out with any other questions. Thanks!

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Cy Dale

OP

Member since 2021 · 6 posts · 1 vote

5y

Hey Andrew thanks for the suggestion. This is something I considered as a strategy (taking a loan from my family member) however the part that concerned me was this piece from Fannie Mae - "Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction."

If I have a debt of the full cost of a home ($300k+) with a standard working income (<$100k) how would I ever qualify for a loan on the cash out refi? Am I looking at this right? Wouldn't that essentially be like trying to take out two mortgages on a single relatively small income?

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Cy Dale

OP

Member since 2021 · 6 posts · 1 vote

5y

@Andrew Postell would this scenario also be problematic because I believe this would be an arms length transaction which is forbidden under delayed financing.

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Cy Dale

OP

Member since 2021 · 6 posts · 1 vote

5y

Originally posted by @Andrew Postell:

@Cy Dale well, it sounds like your loan officer is trying to find a solution here but it's not the right solution. You are buying a property with a loan....you may not have thought about it that way but that's essentially what you are doing. So if you wanted to have a loan/lien/mortgage filed from your family member then you will have ZERO SEASONING AT ALL. I wrote a post highlighting this technique for Bigger Pockets that you can find HERE. The 3rd step is the solution phase. Just substitute "LLC" with "Family Member". Now I wrote that if you were using your own funds but the concept is the same. Just about any title company can help you file the lien and then you can refinance right away. Hope all this makes sense but do feel free to reach out with any other questions. Thanks!

Sorry, I cant figure out how to tag you!

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Andrew PostellPro Member

Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes

5y

@Cy Dale when you refinance a debt it gets paid off. So the payment on the loan goes away and not held against your "debt to income".

Now all of this is under the presumption that your prequalify to refinance. That's one of the key elements to the BRRRR method. So make sure that you get prequalified beforehand.

In the post that I referenced we don't show any payment but whatever you and your family decide they payment will be is fine.

And you are no longer using delayed financing since you are filing a loan and this does not constitute an "arms length" transaction since that applies to who you are buying the home from.

Hope all of this makes sense.

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Cy Dale

OP

Member since 2021 · 6 posts · 1 vote

5y

I follow the strategy now. It is essentially taking a "mortgage" from a family member which will then be refinanced into a new mortgage. But doesn't that negate the advantage of presenting a cash offer since it will no longer be cash but the money secured for the purchase will still be coming from a loan?

How does this strategy differ or compare to simply having the family member purchase the home themselves and then sell it to you immediately after?

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Brent Coombs

Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes

5y

@Andrew Postell, you wrote "all of this is under the presumption that your prequalify to refinance". I was of the understanding that if you have proof of prequalification, Sellers should treat your Offer as being as good as a cash Offer anyway?

Or if, as in Cy's case, the cash is actually there, then I agree with Cy: the simplest way could be for that family member to buy it (if an actual cash-offer can be lower than the best Offer Cy could make with only proof of prequalification), and on-sell it to Cy who has been pre-approved for finance, straight away.

[I do believe the Loan Officer was right to doubt whether Cy's circumstance could be solved through Delayed Financing, because as you've said yourself Andrew, Cy would first be buying it with borrowed money (with said property as security), which is specifically forbidden under DF rules]. Cheers...

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Andrew PostellPro Member

Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes

5y

@Cy Dale most of the time the BRRRR method is used to purchase "off market" transactions. Those types of transactions just want us to close quickly and want our financing not dependent on the condition of the property - "As Is" purchases if you will. If you are purchasing off of the MLS then it could be seen as a "non-cash" offer but the offer is not contingent on financing being approved.

If your family member purchases the property, and then sells the property to you, then that is an ENTIRELY different method. The questions then arise of "what financing would you be using to purchase the property from your family member?" And dependent on what type of prequalification you receive from what loan type there might be rules and restrictions to buying a property from a family member based on your loan type.

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Andrew PostellPro Member

Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes

5y

@Brent Coombs a prequalification letter is not a "proof of funds" letter. A prequalification letter outlines what loan type you are receiving and what terms are required on it (at least, it should do these things). A prequalification letter is NOT the same as a cash offer.

And the same questions will arise as mentioned above - how would Cy buy the property from his family member? It's not a refinance since he doesn't own the property. So he would either need the cash to purchase it from them or a loan. Depending on his loan type, a down payment still might be required and other provisions met as well. Family member would be subject to any capital gains taxes, paying closing costs, etc. This is not a normal method that people use.

Borrowing the money to purchase a property from a family member, and then refinancing is a normal, tried and true method. Hope all of that makes sense.

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Brent Coombs

Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes

5y

@Cy Dale, Andrew raises an important point: "Depending on his loan type, a down payment still might be required and other provisions met as well". So, regardless of your desire to make a (lower) cash offer to have a chance to buy this property, do you have the required deposit saved that your Lender will ask for in order to loan you the balance?

ie. No normal Lender is loaning you 100% of the purchase price (in the first instance), regardless of how good a bargain you got. Yes, you know about 100% Delayed Financing, but, you also know about its conditions.

The point as I see it is: either your family member is prepared to wait more than the 2 months you wanted to avoid, or, you already have sufficient of your own funds as a deposit to satisfy your Lender.

You wrote: "I only see a note that gift money cant be directly reimbursed using the proceeds from the loan. So in that case I would just need to have the funds reimbursed to me and then gifted back to the family member". Sorry, that doesn't fly. Fraught/fraud?

You should also be able to see that the Fannie Mae Rules make it clear that if you are using borrowed money to buy a property (eg. HELOC against a different property), then your funds cannot have used the subject property as security.

[Reason? Because then it wouldn't be Delayed Financing after all!] Good luck...

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Cy Dale

OP

Member since 2021 · 6 posts · 1 vote

5y

Originally posted by @Brent Coombs:

@Cy Dale, Andrew raises an important point: "Depending on his loan type, a down payment still might be required and other provisions met as well". So, regardless of your desire to make a (lower) cash offer to have a chance to buy this property, do you have the required deposit saved that your Lender will ask for in order to loan you the balance?

ie. No normal Lender is loaning you 100% of the purchase price (in the first instance), regardless of how good a bargain you got. Yes, you know about 100% Delayed Financing, but, you also know about its conditions.

The point as I see it is: either your family member is prepared to wait more than the 2 months you wanted to avoid, or, you already have sufficient of your own funds as a deposit to satisfy your Lender.

You wrote: "I only see a note that gift money cant be directly reimbursed using the proceeds from the loan. So in that case I would just need to have the funds reimbursed to me and then gifted back to the family member". Sorry, that doesn't fly. Fraught/fraud?

You should also be able to see that the Fannie Mae Rules make it clear that if you are using borrowed money to buy a property (eg. HELOC against a different property), then your funds cannot have used the subject property as security.

[Reason? Because then it wouldn't be Delayed Financing after all!] Good luck...

"So, regardless of your desire to make a (lower) cash offer to have a chance to buy this property, do you have the required deposit saved that your Lender will ask for in order to loan you the balance?"

The desire is not to make a lower offer. I am a well qualified buyer with 20% down payment available + cash on top of appraised value (up to $20k). The desire is to have my offer chosen. I am being told that cash is being chosen over all other offers and sometimes when the offer is lower than the financed offer. I am just trying to figure out how to play this game that is being played right now in which it seems the regular financed buyers are not playing very well/are losing.

"Sorry, that doesn't fly. Fraught/fraud?"

Can you explain this one to me? I never really understood why this might be considered fraud. Is "gift" defined anywhere in Fannie Mae or otherwise? What entity would actually care, benefit from or be disadvantaged by the gift receiver giving, gifting, returning etc. some or all of the gifted amount to the person immediately or any time in the future (months, years later) voluntarily? Who does it actually hurt or unfairly benefit if some or all of the funds are voluntarily given back to the gift giver? Gift in my eyes is a sum of money that nobody is expected to or required to give back, but not that they are forbidden to give it back. From the perspective of the lender, they want to know that there is no obligation on the receivers side, other than that what do they care?

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Delayed financing to leveral family members cash

Delayed financing to leveral family members cash

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