Palo Alto, CA · Member since 2014 · 104 posts · 14 votes
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.
Lender · Newport Beach, CA · Member since 2013 · 264 posts · 97 votes
8y
@Cliff T. yes, with and without repairs. But the repairs were less than $10k all on one invoice for HVAC. That was palatable for our underwriter at the time. It's why I mention talking to underwriters for every one of these before you proceed. They can underwrite however they see fit.
San Francisco, CA · Member since 2015 · 6 posts · 1 vote
8y
Hi All, I really appreciate the insight shared here, it's extremely helpful.
I've been unsuccessful so far in acquiring an out of state investment property, often losing to all cash offers, even if my offer was higher. I'm exploring a HELOC on my primary residence to allow me to also make a cash offer, but, my plan would then be to do a cash out refi. If I didn't, I'd been dependent on a variable interest rate for the HELOC.
As mentioned in this thread, one downside of delayed financing is the closing costs; my understanding is I'd pay them twice - once on the initial purchase and again on the refi. The LTV will be in the range of 70-75%, and is subject to another appraisal. That means even after the cash out refi, I'm responsible for 25-30% (is this any different from a 25% down payment with a conventional offer?)
Besides it being a cash offer, are there any other advantages in this compared to a normal offer using a conventional loan?
Alternatively, are there any other strategies I may be missing that could be helpful in combating all cash offers outside of HELOC to delay financing?