What are the pitfalls with delayed financing. This is what I read in various threads
a) In delayed financing, the appraisal is typically more strict. So may not come into the right value
b) with delayed financing, u end up paying some closing cost. If you buy a 500K property with all cash and then do delayed financing, you will end up paying higher closing cost vs just doing conventional financing
c) you need to put higher cash upfront. So with a 500K property and assuming 25% down, I would have to put in 125K down. With delayed financing, I have to put in 30% down. (all this assumes non-owner occupied)
Are my points above correct. Also I want to make sure there are enough lenders offering delayed financing. I don't want to get stuck with just one lender offering this program and then have to be beholden to their quirks and monoply interest rates.
Delayed financing is available from every direct lender to fannie mae. So eliminate brokers and stick with bankers on this. But it's not as difficult as many have made it sound to you. Many loan officers/brokers don't understand this because the guidelines are buried deep down in the selling guide that nobody reads.
As to your points:
a) your appraisal is the same as any other appraisal. Banks can't influence an appraiser anymore than you can now with tight regulations. The only appraisals we see that are typically strict are VA appraisals because the VA uses their own appraisers who are trying to advocate for the veteran not to over finance.
b) the closing costs are exactly the same as if you do any refinance. This one is not true at all
c)With delayed financing, you are doing a cash out refinance on a property you just bought with ALL CASH. So if you bought a $500k property, all cash in April, you can do a delayed financing transaction within the 6 months of the purchase to get your cash out to reinvest. You are limited to 70 or 75% of the value of the home, up to 100% of what you paid for the property (what shows up in your HUD and any repairs you can document). So you're not putting down 30%, you're putting down 100%, and then getting 70-75% back out of the property. If you bought at a discount because of poor condition, then do a rehab, you might even get all that you paid for the property with the increase in value.
You'll get regular investment property interest rates which will range from 4.375% to 5.2%. it's really pretty simple. You can only do this if you have up to 4 financed properties though. Any more and you should just finance your properties upfront because you won't be able to get cash out later.
Hopefully this all makes sense
Delayed financing is available from every direct lender to fannie mae. So eliminate brokers and stick with bankers on this. But it's not as difficult as many have made it sound to you. Many loan officers/brokers don't understand this because the guidelines are buried deep down in the selling guide that nobody reads.
As to your points:
a) your appraisal is the same as any other appraisal. Banks can't influence an appraiser anymore than you can now with tight regulations. The only appraisals we see that are typically strict are VA appraisals because the VA uses their own appraisers who are trying to advocate for the veteran not to over finance.
b) the closing costs are exactly the same as if you do any refinance. This one is not true at all
c)With delayed financing, you are doing a cash out refinance on a property you just bought with ALL CASH. So if you bought a $500k property, all cash in April, you can do a delayed financing transaction within the 6 months of the purchase to get your cash out to reinvest. You are limited to 70 or 75% of the value of the home, up to 100% of what you paid for the property (what shows up in your HUD and any repairs you can document). So you're not putting down 30%, you're putting down 100%, and then getting 70-75% back out of the property. If you bought at a discount because of poor condition, then do a rehab, you might even get all that you paid for the property with the increase in value.
You'll get regular investment property interest rates which will range from 4.375% to 5.2%. it's really pretty simple. You can only do this if you have up to 4 financed properties though. Any more and you should just finance your properties upfront because you won't be able to get cash out later.
Hopefully this all makes sense
Agree with what @Robert Sepulveda said in regards to appraisal and closing costs. Not only could you possibly get your entire cash purchase price back (as shown on HUD-1) you even have the opportunity to roll closing costs into the loan if you the numbers work in your favor (you need a great deal to make all of this happen). You can do delayed financing on properties 5- 10 too but the requirements change. Your credit score requirements increase to min 720 and the reserve requirements are 6 months for each property (including the first 1 -4 which previously did not require 6 months reserve). Lenders are plentiful for delayed financing so I really don't see that as a major issue.
I have no idea what your experience level is but before I smack down $500K on a property I would make sure I know what the hell I am doing. Good Luck!
What are the pitfalls with delayed financing. This is what I read in various threads
a) In delayed financing, the appraisal is typically more strict. So may not come into the right value
b) with delayed financing, u end up paying some closing cost. If you buy a 500K property with all cash and then do delayed financing, you will end up paying higher closing cost vs just doing conventional financing
c) you need to put higher cash upfront. So with a 500K property and assuming 25% down, I would have to put in 125K down. With delayed financing, I have to put in 30% down. (all this assumes non-owner occupied)
Are my points above correct. Also I want to make sure there are enough lenders offering delayed financing. I don't want to get stuck with just one lender offering this program and then have to be beholden to their quirks and monoply interest rates.
a) You can always plan your comps and tailor your comps (solds, pendings, listed, etc) to the type of rehab and price you paid for your property. The value should be pretty in line with the comps the problem I see with most borrowers who use DFE from my perspective (I am a LO day to day) is that they expect appraisal value to be based on their own opinions or what they spent on their rehab. This is definitely not true. If you're 1-4 units use comparable approach, if you're 5+ use income approach, etc and adjust accordingly.
b) Like Robert mentioned closing costs on the refinance like any other refinance are the same. Typically refinance closing costs are all flat rate and should range around 3100-3300 including the appraisal for 1-4 units. The more units the higher the closing costs and for rental's you need a rental survey which is about 125 more dollars, however a DFE refi vs regular refi = the same.
c) its cash out to 70% of market value up to 100% of your total gross cost shown on your final HUD-1 on the bottom of the first page. If you're 5+ financed properties then your LTV or max loan percentage drops 5%, 6 months reserves on all properties financed that are 1-4 units, and 720 min fico.
"You can only do this if you have up to 4 financed properties though. Any more and you should just finance your properties upfront because you won't be able to get cash out later."
Actually, you can due Delayed Financing Exception all the way up to 10 financed properties (I used on properties 4, 5 and 6 for me). Only the normal cash-out refi ends after 4. Not all lenders will do everything Fannie Mae permits, however. They often have overlays, so finding one that will go up to 10 can take some calling around.
On the other point, you end up paying a little more in total closing costs simply because you close twice - once to purchase (so title insurance, filing, etc. from the title co), and then the refi.
c) its cash out to 70% of market value up to 100% of your total gross cost shown on your final HUD-1 on the bottom of the first page. If you're 5+ financed properties then your LTV or max loan percentage drops 5%, 6 months reserves on all properties financed that are 1-4 units, and 720 min fico.
Quick question regarding this....is a house with a HELOC (and no other loan/mortgage) on it that has a zero balance considered a "financed property"? For example, let's say an investor has a primary residence that has a conventional mortgage, and two rentals that have been paid off but now each have HELOCs on them but both with zero balance, would Fannie Mae (or a lender) consider the investor to have one financed property or three? And would the answer be different if the HELOCs did have balances on them?
yes a heloc is assumed to or can be maxed at any point so yes it's a financed property.
that's confirmed for 3 financed properties
that's confirmed for 3 financed properties
Thanks Albert.
welcome that's why mortgage planning if done right can be a huge game changer most LO's (loan officers)are already confused enough with the onerous guidelines it takes an investor focused and involved mindset to plan correctly for income, assets, credit, financed properties, etc
I have made a cash offer on a Fanny Mae property that is in foreclosure. It has to be an investment, as it's too close to be called a second home, but this is my first time through all this.
I'm putting together cash from an IRA and HELOC on my primary residence, so there won't be an appraisal. It needs cosmetic fixes that we intend to do ourselves (paint, sanding hardwood floors, replace screens). So my hope is to then have it appraised (3-6 months) and apply for a delayed financing mortgage (Fanny Mae) of up to 75% of the value of the house.
My question is, will that be 75% of the appraised value when I apply for the delayed mortgage or the price I paid? I have been told the house will be worth about $20k more than what it is on the market for and 30k more than my offer.
P.S. I already have a family member lined up to rent the house and help with repairs.
@Dee Emeigh Are you taking a distribution from the IRA to finance this or will the IRA be an investor?
While using an IRA to invest in RE is a great idea, you've got to remain aware of some do's-and-don'ts. Some items in your post caught my intention: intention to fix the property yourself and the intent to rent to family. If being done from within the IRA there may be some tax pitfalls.
Taking a distribution from the IRA.
I know this post is a few months old but just have a quick question: why would you use the delayed financing as opposed to just doing a HELOC? what makes one better than the other? I want to take money out of a property i just bought to purchase yet another property but want to find the best option.
@Maria Marrero A HELOC is a great tool for flexible cash management. But it's very rarely available on investment property. Delayed financing is primarily on investment property you paid cash for. So if you want to use a HELOC, you are typically using it on your primary residence 12 months or more after you acquire the property ( unless you got one right at purchase).
Delayed financing is first and foremost a product that allows you to get your cash out of an investment property IMMEDIATELY after you've paid cash for it. Whereas a HELOC requires normal seasoning of 6 or 12 months depending on the lender.
A HELOC is very good when you have equity in your primary home, and would like to tap it to invest in other property. Essentially, you'd be paying cash for an investment property with the HELOC (assuming you have enough of a line of credit) and could then use Delayed Financing to repay the HELOC and have it available for the next opportunity. There are plenty of other uses. These are just a few.
Also, delayed financing essentially can be permanent financing, as you'd have fixed long term rates available in around the 4.5% to 5.25% range lately. Whereas, a HELOC runs about 1/4 to 1% higher and is typically variable based on either the Prime or Libor index.
@Robert Sepulveda Thanks for your response!! So this house I bought is actually my primary residence. I wanted to do the delayed financing on it. So it cant be done because its my primary? The other investment property that I own doesnt qualify because its been too long since I purchased it [2008]. Basically what I want to do is get money out of any of these two properties to buy a third one however the investment property doesnt qualify for either loan so I am thinking of just taking a HELOC out of the primary.
@Maria Marrero Your investment property would qualify for a basic cash out mortgage or HELOC. You're well beyond 12 months seasoning requirements. You can typically get 65% of the value in your property in cash with either an investment property portfolio loan or a conventional investment property loan.
On your primary, you can technically use the delayed financing for any property. However, individual lenders often require anything outside of the standard loan (now called a "qualified mortgage" ) to be a business purpose or investment property loan. It limits your options on who will do it, but yes it's possible. Let me know if you need a referral that handles your area.
@Robert Sepulveda Yes if you could please send me some referrals, that would be great!
Thanks :)
@Robert Sepulveda
Do you get to cash out 75% of that appraised value using delayed financing or do you get 75% of what you paid for the property.Example
Say that I bought a property for 350k cash including closing costs.Before closing it appraised for 500k.
I then applied for a cash out refinance using delayed financing program.Their appraisal also came in at 500k.
Would I get 375k (75% of appraised value). Or would I get 262k (75% of what I paid for the property).
@Raheem Forsythe Delayed financing is a loan that you can use in the 1st 6 months of ownership to get typically 75% of the appraised value, up to 100% of what you paid cash for the property plus closing costs on the refinance. So if you paid $375,000 for the property and it appraised at 500K you would get a loan amount of $375,000 if it appraised for more than 500K you would get the purchase price of $375,000 plus closing costs as a maximum loan amount.
The property can not have any type of mortgage or lien against it at the time of closing the delayed financing loan. Once you have been in title to the property 6 months and 1 day, then you can do a standard Fannie Mae cash out refinance that doesn't have restrictions of having had to pay cash for the property. So you can have a loan against the property and the cash out will just pay off that underlying loan and the rest will be disbursed as cash back to you, on the standard Fannie Mae cash out.
I just completed a delayed financing for one of my borrowers a couple of months ago, it was an owner occupied and so I was able to go up to 80% LTV. Its a great loan if you cant wait the 6 months to get to the standard cash out guidelines.
Delayed financing is available from every direct lender to fannie mae. So eliminate brokers and stick with bankers on this. But it's not as difficult as many have made it sound to you. Many loan officers/brokers don't understand this because the guidelines are buried deep down in the selling guide that nobody reads.
As to your points:
a) your appraisal is the same as any other appraisal. Banks can't influence an appraiser anymore than you can now with tight regulations. The only appraisals we see that are typically strict are VA appraisals because the VA uses their own appraisers who are trying to advocate for the veteran not to over finance.
b) the closing costs are exactly the same as if you do any refinance. This one is not true at all
c)With delayed financing, you are doing a cash out refinance on a property you just bought with ALL CASH. So if you bought a $500k property, all cash in April, you can do a delayed financing transaction within the 6 months of the purchase to get your cash out to reinvest. You are limited to 70 or 75% of the value of the home, up to 100% of what you paid for the property (what shows up in your HUD and any repairs you can document). So you're not putting down 30%, you're putting down 100%, and then getting 70-75% back out of the property. If you bought at a discount because of poor condition, then do a rehab, you might even get all that you paid for the property with the increase in value.
You'll get regular investment property interest rates which will range from 4.375% to 5.2%. it's really pretty simple. You can only do this if you have up to 4 financed properties though. Any more and you should just finance your properties upfront because you won't be able to get cash out later.
Hopefully this all makes sense
(I just saw this 2yo post). Robert (or anyone), is it REALLY correct to say ..."and any repairs you can document"? And ..."then do a rehab, you might even get all that you paid for the property with the increase in value"?
Afaik, the maximum "Delayed Financing" within six months is limited to the purchase price plus closing costs - NOT including rehab costs that are done AFTER closing, right? [Best to get the right info BEFORE parting with cash, imho].
Delayed financing is available from every direct lender to fannie mae. So eliminate brokers and stick with bankers on this. But it's not as difficult as many have made it sound to you. Many loan officers/brokers don't understand this because the guidelines are buried deep down in the selling guide that nobody reads.
As to your points:
a) your appraisal is the same as any other appraisal. Banks can't influence an appraiser anymore than you can now with tight regulations. The only appraisals we see that are typically strict are VA appraisals because the VA uses their own appraisers who are trying to advocate for the veteran not to over finance.
b) the closing costs are exactly the same as if you do any refinance. This one is not true at all
c)With delayed financing, you are doing a cash out refinance on a property you just bought with ALL CASH. So if you bought a $500k property, all cash in April, you can do a delayed financing transaction within the 6 months of the purchase to get your cash out to reinvest. You are limited to 70 or 75% of the value of the home, up to 100% of what you paid for the property (what shows up in your HUD and any repairs you can document). So you're not putting down 30%, you're putting down 100%, and then getting 70-75% back out of the property. If you bought at a discount because of poor condition, then do a rehab, you might even get all that you paid for the property with the increase in value.
You'll get regular investment property interest rates which will range from 4.375% to 5.2%. it's really pretty simple. You can only do this if you have up to 4 financed properties though. Any more and you should just finance your properties upfront because you won't be able to get cash out later.
Hopefully this all makes sense
(I just saw this 2yo post). Robert (or anyone), is it REALLY correct to say ..."and any repairs you can document"? And ..."then do a rehab, you might even get all that you paid for the property with the increase in value"?
Afaik, the maximum "Delayed Financing" within six months is limited to the purchase price plus closing costs - NOT including rehab costs that are done AFTER closing, right? [Best to get the right info BEFORE parting with cash, imho].
The repairs/improvements/etc that you can share with the appraiser can certainly help you get the appraisal up to the point where you're loan amount is 100% of your purchase price if LTV would otherwise have prevented you from being 100% financed on the purchase price, but it's not a loophole to get around that cap, no.
That post is also two years old, so guidelines have changed in a few other ways since then too. You can do a cash out refinance with >4 financed properties, for example.
Get the refinance started before you even close on the cash purchase. I've seen more FUBAR'd delayed financing deals cross my desk than successful ones, typically the FUBAR'd ones are folks that didn't call before doing the cash purchase.
If your lender isn't holding your hand at the point of the cash purchase, based on you sending in actual paperwork and not just talking about what the paperwork might say, then just go ahead and assume that delayed financing is a total coin toss.
Anybody know where I can find a lender who will do delayed financing on a manufactured home? Buying with a heloc on my residence and would like to get the cash back out soon for another deal.
I am no expert here as I have yet to use delayed financing but I have been doing my research and perhaps I missed where it states you can recoup "and any repairs you can document" as you stated.
This is the only thing I found on the fannie mae website:
"The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value)."
Just want to make sure I didn't miss anything and that no one is misinformed here. Thanks.
All the best,
Jorge
@Account Closed Great question and definitely should be dug into to qualify repair invoices being included.
Why I say that it can is from speaking directly to two different nationwide banking underwriters specifically on delayed financing deals I was doing. Because the guideline you correctly site is vague, it doesn't even say that you have to provide the closing statement/HUD, the underwriters are there to determine "initial investment" into the subject property. If it requires maintenance in order for it to pass Fannie Mae, Freddie Mac, VA/FHA guidelines for property working condition of the property, then the underwriter has the discretion to allow the reimbursement of the invoices up to the max LTV and no more than the actual dollar amounts paid in total.
So, if a property cannot qualify for a "qualified mortgage", then the underwriters will see it as an "initial investment" to make it a livable property - especially if you cite FHA/VA guidelines. They're much more strict.
Additionally, if the property cannot be rented until maintenance is complete, then the same applies. So all in all, when the reimbursement of invoices is the goal, it's definitely best to review your scenario with a lender who does direct underwriting. This way you can ask the question ahead of time, and not waste time expecting to recoup say $25k in rehab costs.
But it is definitely able to be considered part of the initial investment in the property. But also subject to interpretation, since the guideline is vague.
Thanks @Robert Sepulveda. Have you successfully closed on a Delayed Financing situation as you described, where the "initial investment" and cash-out amount included rehab costs?