Use Conv loan or Delayed Financing
Dulce DavisPro Member
Member since 2020 · 62 posts · 17 votesUse Conv loan or Delayed Financing
3 Replies
- 2yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Dulce Davis:
Where I am buying, the sellers will negotiate better using cash to purchase. The last home I received most my cash back using Delayed Financing, (which is pay cash, rehab, then finance within 6months). My issue though are appraisers that give lower values using this method. Several others said they found this to be true also....For conv financing I'd buy it, rehab, then refinance after about 6 months to get my rehab expenses back. I don't know how the appraisals will go, and I don't like having to wait 6 months. The lender says theres good/bad to both ways. What opinions on it do yall have???
@Dulce Davis You want to make sure you understand the subtle differences between delayed financing and if you have current financing when it comes to pulling cash out.
For delayed financing: Has to be closed within 6 months of purchase and assuming a single family home you can borrow up to the LESSOR of what you paid for the house plus closing costs OR 75% of the new value. So, if you buy for 100k and the property now appraises for 200k you can only borrow 100k plus closing costs. If the property appraises for 125k, you could only borrow 75% or 93,750.
If you finance the purchase in any way: You have to actually wait 12 months now to to use the new value to pull CASH OUT. ( been this way since April 2023. Fannie Mae cash out) So, that is for a cash out loan NOT if you just want to refi what you owe. So, again, if the new value is 200k and you 100k you would have to wait 12 months going to directly to a conventional loan to borrow 75% or 150k but you could refi the 100k into a new loan with no wait. For some DSCR products the wait is 6 months, and for other usually awfully priced options are 3 months.
Our way around this is funded a bridge loan with no waiting period for 75% of the improved value giving you cash out with our funds, then immediately refinancing that bridge loan into the conventional loan or DSCR product using the same appraisal is most cases. Again, no waiting period for simply refinancing what is owed. We have done for many members of the bigger pockets community.
As for the appraisals, I have not really seen much difference in values with the different approaches but always encourage my borrowers to make the appraisers job as easy as possible. You want to provide them with the scope of work on what you did. provide before pictures etc. Often in neighborhoods that there is rehab work going on there are two sets of comps; those that have been rehabbed and those that have not. You purchased from the latter group, but now the house needs to be compared with the rehabbed group. Make the appraiser's job easy by showing them why.
Hurst Real Estate, INC4.991 Reviews - Member since 2020 · 62 posts · 17 votes2y
I did delayed financing on my last one, it took maybe 5 or 6 weeks to get some of my funds back. The appraiser comped my house (brick on slab, in nice hood with fancy RVs and fishing boats) with other hoods with block n beam rotted wood homes sitting next to convenience stores and strip centers. I was livid. Then the lender decided they would do 70%, not 75% of the new value. I'm a bit gun shy at this point. The bridge loan sounds like a good potential option. Thanks much
- 2yAJ ExnerPro MemberLender · Springfield, MO · Member since 2023 · 652 posts · 315 votes
Quote from @Dulce Davis:
Where I am buying, the sellers will negotiate better using cash to purchase. The last home I received most my cash back using Delayed Financing, (which is pay cash, rehab, then finance within 6months). My issue though are appraisers that give lower values using this method. Several others said they found this to be true also....For conv financing I'd buy it, rehab, then refinance after about 6 months to get my rehab expenses back. I don't know how the appraisals will go, and I don't like having to wait 6 months. The lender says theres good/bad to both ways. What opinions on it do yall have???
Hey Dulce,
I do this for a number of my clients and its a great way to have the negotiating power of cash while still maintaining liquidity/capital.
So true delayed financing will be based on the purchase price and then the rehab work that you set in place before/while you apply alongside the After Repair value. DF is how you can recover a good chunk of your purchase cash back (~80-85%) while setting your rehab funds in an escrow that you can draw on as you do the work until you refinance post-seasoning and/or completion of the rehab.
If you are talking about a true cash out refinance, you would need to wait a period of time (based on the lender) until the property has achieved seasoning. Conventional lenders will ask for 12 months before you can, DSCR lenders will range between 3-6 months usually with most being at 6.
Its just a way for the lenders to make sure that the property is stabilized, but there are still ways to leverage it and keep your systems and processes going. Happy to talk through it if you are going through it with a deal right now.
Thanks!
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