Delayed financing exception

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Delayed financing exception

David Woolfork
Investor · Poplar Bluff, MO · Member since 2017 · 8 posts · 0 votes

Please help this BP newbie out. I've been reading posts on the "Delayed Financing Exception" by Fannie Mae.  Lets say that you pay 70k all cash for a house and the house is appraised at 100k. As I understand it you get to pull back out your 70k plus the closing costs? Do you get to pull out more if you do some rehab and it appraises at say 120k? This sounds great from what i've read just want it in newbie/laymans terms of the ins and outs. TIA

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Harjeet BhattiPro Member
Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
9y

You won't be able  cash out more than  what you paid for it under delayed financing. 

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  • Account Closed
    Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    9y

    @Jerry Padilla wrote a great blog on this topic

    https://www.biggerpockets.com/blogs/5110/42824-all...

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  • Paul DefnginPro Member
    Lender · Rockville, MD · Member since 2008 · 498 posts · 199 votes
    9y
    David Woolfork delayed financing loan to value is capped at 75% of purchase price on investment properties and 80% on a primary property. If you wait 6 months after purchase, then you can use appraisal value at that time. Hope that this makes sense. Good luck.
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  • Harjeet BhattiPro Member
    Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
    9y

    You won't be able  cash out more than  what you paid for it under delayed financing. 

    2Reply
  • Melvin ListBusiness Member
    Lender · Tampa, FL · Member since 2016 · 1k+ posts · 381 votes
    9y

    @David Woolfork New loan amount must not exceed documented purchase price, closing costs, prepaid fees & points.  If you paid $70,000 but had $5000 in closing cost you can go up to $75,000

    C2 Financial
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  • Anthony White
    BUENA PARK, CA · Member since 2017 · 58 posts · 333 votes
    9y

    Info for a scenario... 

    Say I buy a property for $40k and with closing costs of $2k. The I place $5k in rehab. Total $47k "all in"

    Now I understand, that under the Delayed Financing Exception, I would say I can only use it to take out 75% of the purchase price. meaning 75% of $42k.

    75% of $42k is $31,500 so now I would have a $9k balance on my original HELOC used to purchase the property and now a 15 or 30 mortgage payment on the $31,500 new "Delayed Financing Exception"

    Is that correct? 

    Thank you for your time!

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y
    Originally posted by @Anthony White:

    Info for a scenario... 

    Say I buy a property for $40k and with closing costs of $2k. The I place $5k in rehab. Total $47k "all in"

    Now I understand, that under the Delayed Financing Exception, I would say I can only use it to take out 75% of the purchase price. meaning 75% of $42k.

    75% of $42k is $31,500 so now I would have a $9k balance on my original HELOC used to purchase the property and now a 15 or 30 mortgage payment on the $31,500 new "Delayed Financing Exception"

    Is that correct? 

    Thank you for your time!

     That is not correct. You didn't mention what it appraised for, nor can you know ahead of time what it will appraise for. DFE is always one-off, no two scenarios are the same. Sometimes you can do the cash out refinance right up to your purchase price. 

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  • Anthony White
    BUENA PARK, CA · Member since 2017 · 58 posts · 333 votes
    9y

    @Chris Mason under the Delayed Financing Exception, does it matter what the appraised value is - because you can only take out what you paid anyway. 

    OR are you saying after I buy the property for $40k and spend $2k in closing cost ($42k ALL IN) and it appraises for $65k. 

    75% of $65k is $48,750 

    But since I purchased the home for $42,000 - Even though the 75% is $48,750 - I can only take out the $42,000 

    So basically, depend on the cashflow of the rental to retrieve the rehab costs. 

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  • Rashad Luckett
    Savannah, GA · Member since 2016 · 58 posts · 108 votes
    9y

    @Anthony White The appraised value matters because of the LTV. No matter what (using DFE) you can only get a max of what you paid plus closing costs. However, if the appraisal is too low to support that then you will get less.

    Your example is correct. You would get your 42k (and no more) back as long as the property appraises for 56k or above. If it appraises below that you will get 75% of whatever that is. 

    Another thing to keep in mind is that the DFE Refi will have closing costs as well and the cash you receive may be less than the loan amount of the refi. 

    1Reply
  • Ashley Jeffers
    Rental Property Investor · Charlotte, NC · Member since 2017 · 9 posts · 1 vote
    8y

    Hi All.  I was just told by a mortgage lender that in order to utilize this option that 100% of  the funds have to be gifted AND you have to wait 90 days to cash out.  Is that true?  Anyone have a link to a resource I can send him?

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