Delayed financing and no seasoning loan

22 Replies

Hello,

I have about some equity in my primary residence.  I am in the process of moving into another property and was going to sell my current home and use the funds to purchase more properties.  I recently heard a podcast on BP regarding delayed financing through secondary market.  From what I understand, you can use the equity you have on a property to purchase another property.  Then there is no seasoning period to obtain a mortgage on the new property.  Did I understand this correctly?  Anyone has done this with success?  Would you recommend this route?  Thank you in advance!

Generally speaking, you buy property cash, then do rehab (if needed), then you can refi up to 80% out of the ARV. Again, generally speaking, cash deals are seen as stronger so you might get a "better" deal than had you attempted to do it via traditional financing.

Now, you'd either need to sale, cash out refi, or HELOC to use the equity in your house to buy another house cash. If you're going the HELOC or cash out route and don't have enough funds for full cash purchase you'd need to let your funds season (about 2 mo) in your bank acct.

If you didn't do this and went 20% down traditional you'd have to wait 6-12 mo for the property to season. Otherwise you'd be limited to 80% of purchase price (+repair costs if applicable). Also note you're more than likely limited to a 50K or greater loan by the bank.... 

@Sheena Varghese I admittedly did not listen to the podcast but by definition - that is not delayed financing. Delayed financing is when you buy a property in cash and can cash out refinance within the first six months of owning the property.

What I believe you are looking for is a bridge loan - which in many ways does not exist the way it used to. I do know of a couple of bridge loan options for you. They will allow you to take out a second loan on your current property, subordinate to the first mortgage, to use for down payment on the new home. The hope would be that lien gets paid off as soon as you sell your current home. Does that make sense?

Feel free to PM me for more info on the bridge loan. 

@Matt K. - Thank you for the response. So, there is no way for me to purchase a property cash, turn around within days and get a conventional 70-80% loan on it, correct? I would have to wait 6+plus months to do that?

You actually could because I have just helped a client do that. Alot of creative finance techniques outside of a conventional loan. Can discuss more through direct message 

@Sheena Varghese

Here is something I found on another thread by another BP member. I will paste it here. Hope it helps.

1. The Conventional Rules For a Cash Out Loan

Fannie Mae and Freddie Mac are the Government Agencies that sponsor conventional lending. Most banks will have these loans as an option. There are other loan types as well but for brevity we will limit this post to the “Conventional” lending (Fannie/Freddie).

  • Conventional Loans limit your cash out on an investment property to 75% of the “After Repair Value” on a Single-Family home (70% on a 2-4 unit home). This is also the same percentage that you need for a non-cash out refinance (more on why that is important later).
  • If you purchased the investment property with a loan, then conventional loans will require you to wait 6 month to take cash out.
  • This rule does not apply if you purchased the home with CASH (more on that in section 2).

Let’s explore some examples here:

If you purchased a property with a 15% down conventional loan (85% loan to value) and you wanted to get cash out, you wouldn’t be able to do so since the cash out limit is 75% of the “Loan to Value”. The MAXIMUM cash out you can receive is 75% of the value of the property.

If you purchased a property with a loan, but did the rehab on with your own cash, then you would need to wait 6 months to get that cash back. Keep in mind you could only receive 75% back of the After Repair Value.

So if you bought a home with a loan of $50k, it required $30k in renovations, and it appraised for $100k after the repair work was complete then….

You would refinance the $50k loan, receive back $25k in cash…since $75k would be 75% of the After Repair Value.

2. Buying a home with Cash

Buying a home with cash has become increasingly popular for many investors but often an investor will be caught with the restrictions to cash out loans if they need to get their money back. There is a plan to avoid this entire section (In section 3) but it is important for us to know about these restrictions. If an investor is buying with cash and flipping they get their money back when they sell the property. But if they are seeking to hold a property for any length of time and want their cash investment back there are some important rules to understand with conventional loan:

If you buy a property with cash (or with a HELOC) you can receive a cash out loan on Day 1.

There is not a 6 month waiting period with receiving a cash out loan if you purchased a home with cash or with a HELOC

BUT you will be limited to the amount of….

Your purchase price + closing costs (costs when you purchased the home)

OR

75% of the “After Repair Value”…

WHICHEVER IS THE LOWER AMOUNT (super important)

These rules are important to understand so here are two examples:

Example 1: If you purchased a home with $50k of cash, and put $30k of renovations into the loan, and the home was worth $100k. 75% is $75k and $50k is your purchase price. So you could only receive $50k in your first 6 months ofownership since the LOWER amount is your purchase price. After 6 months you could receive the full 75% of the ARV.

Example 2: If you purchased a home with $80k of cash, put $5k into the home, and the home was worth $100k. 75% would be $75k and your purchase price is $80k…so the lower amount is $75k.

When buying a home with cash you can absolutely get cash back right away but you will be limited to the lower of those two amounts.

3. HOW TO PROPERLY STRUCTURE BUYING A HOME WITH CASH

With these rules, you can see how it can be confusing to get conventional lending when buying a home with cash but there is absolutely a proper method to structuring your deals when buying cash. Here’s the secret:

Create an LLC and have the LLC lend you a mortgage on the property you are receiving.

The reason why this works is because instead of you needing cash or receiving a cash out loan, we are now refinancing a loan – your loan. There no reason to wait any time or have any “whichever is lower” rule come into play. We are just refinancing a loan.

Here’s how it works:

You create an LLC

You buy a home

Your LLC gives you a loan for the home

You file the deed for that loan at the county courthouse

You use the money from the LLC to buy and fix up the property

Once the property is completed, your conventional lender comes to refinance the loan

Your conventional lender runs title and sees there is a loan.

Your conventional lender refinances you into a new loan, and cuts a check to your LLC in the amount of 75% of the value.

Please don't confuse this 75% with a "cash out" amount. The non-cash out LTV on a refinance is also 75%. We are refinancing a mortgage. Your LLC's mortgage. Essentially your LLC has become the bank/hard money lender/etc. However you want to think about it. You get to set the interest rate (it can be 0%) and you get your investment amount back sooner.

Some things to think of:

To file a deed at the county courthouse is $100-$150 in cost (depending on which county)

And you want that note to be pretty close to 70% of the ARV for the property if you don't want to bring any money to closing. 70% will allow you to roll in your closing costs. If you want it to be at 75% just keep in mind you would need to bring your closing costs out of your pocket to complete the refinance.

Originally posted by @Sheena Varghese :

Matt K. - Thank you for the response. So, there is no way for me to purchase a property cash, turn around within days and get a conventional 70-80% loan on it, correct? I would have to wait 6+plus months to do that?

 You can if you do it cash that's the way around 6 mo, but has to be all cash. 

If you don't have all cash then you'd need loan and seasoning. If you don't have all the cash for the down payment and do HELOC you need to season that for about 2 months in your acct.

Buying a home cash then doing cash out of appraisal value is called delayed financing. You have x ammount of time to do it I forget how long though. I'd also verfiy this with your actual lender to ensure it applies to what you're actually trying to do. It's little different than buying with a loan and trying to cash out (you can't they'll use purchase price), key being all cash and delayed financing.

@Jorge Ruiz - As far as the LLC giving me a loan, I am assuming I would work with a lawyer on that correct?

@Sheena Varghese I never executed that strategy but that does sound like a good idea. Hit up a guy named Andrew Postel here on BP. He is the one who originally posted that info. 

Jorge

@Sheena Varghese I just copied what @Jorge Ruiz posted from Andrew's message and sent to 1) my CPA (hey will this fly?) and 2) my mortgage guy who is my portfolio lender. I want to make sure it will fly in Florida, as I am in Jax. If this is A-OK, its a great solution for getting around the seasoning issue. The cost of the LLC is minimal, courthouse filing minimal too.

@Sheena Varghese if you need help with the steps from my post let me know.  When I posted that originally I was using the 75% figure when you refinance but you can actually do 80%.  Here's the original post HERE but feel free to ask more questions if you need. Thanks!

@Sheena Varghese   The only think I can add is that when lenders do "delayed financing" you can sometimes get the purchase rate instead of refinance rates.  In our case, we could do it when you got a loan from another property for the cash to buy the new one.  However, the proceeds from the new loan would have to go to paying off the first loan.  The only proceeds you could get would be the actual cash you used.  

Thank you all! I am currently in the process of getting a loan with no seasoning and 75% of the purchase price, the best I could do right now.

Originally posted by @Sheena Varghese :

Thank you all! I am currently in the process of getting a loan with no seasoning and 75% of the purchase price, the best I could do right now.

 Hey sheena

Curious if you ended up using to do the no seasoning 75% cash out refi ? Did you use the LLC method mentioned above?

I didn't go the LLC route but did close on the 75% cash out refi.

@Jorge Ruiz - Sure, purchase price $139K, appraised at $179K, sorry, I meant 70% so $125.3K loan at 5.1%

I wish I could have waited the 6 months to get more out but needed the cash out sooner.

Thank you for sharing your information. So on the delayed financing did you have to pay two closing cost. One for the cash purchase, and one for the getting your money back.

Thank you again.

@Sheena Varghese

Jorge, why go to the cost of setting up an LLC to borrow from? The lender can be a private party or a trust, both of which are less expensive and less hassle than an LLC. I've done it this way several times; it's a piece of cake.

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