Conventional Mtg 'Delayed Financing' Rule Success?

Question

I was curious if anyone has completed a conventional mortgage under the "delayed financing" rule that came out last year, and if so, with what bank or lender?

This rule allows you to do a cash out refinance inside 6 mths, using the appraised value (BUT.... the loan cannot be larger than your original purchase price plus all closing costs and prepaid/escrows).  However, if the rehab wasn't huge in relation to the purchase price, this would appear to be very appealing.

http://themortgagereports.com/6336/delayed-financing-rule-cash-out

Angie B. · Answer

We are looking at doing this now.  I contacted US Wide Financial, and they actually told me about the delayed financing program and said it would be perfect for what we wanted.  I thought I would look a little more into it, which is how I found this thread.  By the way, I don't think US Wide Financial serves all states, but I found them through bankrate's website using their rate search and so I'm sure there would be similar mortgage companies who also utilize this program.  I will update here to let you all know how it works out...

Sam Elder · Answer

Interesting.  I was Googling to see about FNMA delayed financing on primary properties in Texas (Texas has stringent primary property equity loan guidelines) and saw this post on investment properties.

FWIW - we provide FNMA delayed financing for investment properties regularly, and what you are leaving on the table in terms of lost leverage as it is being discussed here seems to be incorrect.  Delayed financing is a cash-out loan and is subject to cash-out guidelines (except the timeline).  The maximum LTV is the same.

Generally speaking, investors land at about that 70% - 75% mark anyway.  In fact, if the value skyrockets, you do have the responsibility to substantiate that when completing delayed financing (as mentioned).  In rare instances where people put $0 into the property, and it appraises for much, much higher, it can be problematic.  You can be relegated back to purchase price as substituted value (75% of purchase price instead of 75% of appraised value).  If you can paper trail reasonable repairs, it generally negates the issue, however.

If it's a huge appreciation in value, or if it's a huge rehab, yes, you may be better off with a cash-out loan that starts after the six month delayed financing window has passed.  That is unless, of course, you already have four financed properties.

This discussion is limited to FNMA delayed financing/FNMA cash-out loans and would not have the same guidelines as bank loans that are not sold into Fannie Mae (generally more flexibility with the trade-off being shorter terms and higher rates).

Sam

Robert Bowles · Answer

Directly from a lender's underwriting guidelines:

Delayed Financing Exception: 
		
			? Cash out refinances where the subject property was purchased within 6 months (measured from HUD-1 date to the disbursement date of the new mortgage) when no financing was obtained for the purchase are allowed under the following parameters:
		
		
			o The new loan amount must not be 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 – subject to the maximum LTV/CLTV/HCLTV for cash out transactions. Note that if the borrower owns 5-10 financed properties, and the subject property is 2nd home or non-owner occupied, lower LTV/CLTV requirements apply, and these requirements MUST be manually applied.
		
		
			o The purchase transaction must have been an arms-length transaction.o The purchase transaction must be documented by the HUD-1 which confirms
		
		
			that no mortgage financing was used to obtain the subject property. The preliminary title search or report must also confirm that there are no liens on the subject property.
		
		
			o The source of funds for the purchase transaction must be documented (bank statements, personal loan documents, HELOC on another property).
		
		
			o If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the HUD-1 for the refinance transaction must reflect that all cash-out proceeds be used to pay down, if applicable, the loan (unsecured or secured by an asset other than the subject property) used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction.
		
		
			o Cash out to recoup gift funds is not permitted. Fannie Mae does not consider gift funds as the borrower’s own vested funds.
		
		
			o All other cash out refinance eligibility requirements must be met and cash out refinance pricing applies.
		
		
			I just did this (5 months ago) for a property i purchased at auction and was no problem at all.

• Delayed Financing Exception:

? Cash out refinances where the subject property was purchased within 6 months (measured from HUD-1 date to the disbursement date of the new mortgage) when no financing was obtained for the purchase are allowed under the following parameters:

o The new loan amount must not be 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 – subject to the maximum LTV/CLTV/HCLTV for cash out transactions. Note that if the borrower owns 5-10 financed properties, and the subject property is 2nd home or non-owner occupied, lower LTV/CLTV requirements apply, and these requirements MUST be manually applied.

o The purchase transaction must have been an arms-length transaction.o The purchase transaction must be documented by the HUD-1 which confirms

that no mortgage financing was used to obtain the subject property. The preliminary title search or report must also confirm that there are no liens on the subject property.

o The source of funds for the purchase transaction must be documented (bank statements, personal loan documents, HELOC on another property).

o If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the HUD-1 for the refinance transaction must reflect that all cash-out proceeds be used to pay down, if applicable, the loan (unsecured or secured by an asset other than the subject property) used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction.

o Cash out to recoup gift funds is not permitted. Fannie Mae does not consider gift funds as the borrower’s own vested funds.

o All other cash out refinance eligibility requirements must be met and cash out refinance pricing applies.

I just did this (5 months ago) for a property i purchased at auction and was no problem at all.

David Beard · Answer

@Patrick Baker  - conventional lenders don't care about your receipts for work done, so the answer is no.  After 6 mths seasoning, the receipts won't matter either, as lendable value will be determined solely by a new appraisal.

The DFE loan looks only at purchase price, plus closings costs and prepaids (escrow setup) on the refinancing loan.

Patrick Baker · Answer

@David Beard

Almost two years after the last post here, but I too am curious if you had any luck with this or could share your experience.  If you were to quickly rehab the cash house, could those rehab costs (with receipts) be included in the delayed financing c/o refi within the first 6 months or would that have to wait for the seasoning?

David Beard · Answer

Brady, I have not had the opportunity yet.  I would be surprised if many lenders balk at this, given that it's a pretty simple rule to enact in their underwriting process.  It could get a bit tricky to get the appraisal to come in where you want so quickly after purchase, while only doing a moderate rehab, but clearly doable.  Working proactively with the appraiser, and having very good comps, would be advised.

Brady Dawkins · Answer

David,

Have you had any luck with this or done any more research? I've been looking at buying a couple in cash then refinancing as soon as possible. This situation could be ideal for me.

Has anyone had any luck finding lenders that will do this kind of loan?

This is my 1st post but I have 1 owner finance property that I love and am looking to get into rentals and flips. Hope to be posting more soon.

Sam Sagor · Answer

The answer is you can (the article mentions one). Finding that lender may be difficult if you are bound to your area. This would be a great idea if you could find a way to actually get it to work I think it's going to be difficult to do so because we aren't hearing more about this but that doesn't mean it's impossible.

Also thank you for the warning about HELOCs - I would not be getting a variable rate but locking for 5 to 7 years.

Mike H. · Answer

Hmmmm. Am I reading that right? 65% of the APPRAISED value if you pay cash and you can do that after a month?

I'm wondering if that would be a better way to structure my private loans. If my relative does a private loan with me and I pay cash, would I be better off no longer recording a mortgage?

Instead of waiting 6 months, I could do it in 1? Provided the appraisal value came in at 65% that is.  But even if I have to put in 5% to 10% of my own money to get there, doesn't that seem like a better way to go?

Then again, the brokers out here where I'm at (Illinois) really seem completely clueless in doing investor loans once you get over 4. My plan was to refi into conventional until I get to 10 in my name and then move some over in a blanket loan to keep adding more.

I've got 7 in commercial loans now that don't count against my limit. But whats the point if I can't get any of these lenders to do the 5-10 financing....

David Beard · Answer

Thanks, Sam, the cash out refi LTV is 75%, according to the Fannie Mae Eligibility Matrix (70% for 2-4 unit properties), so the LTV difference is 5%.

The scenario I see is that you buy a SFR foreclosure for 50k that'll rent for $1000, rehab it for 10k, get it appraised at 75k, get the loan for 50k, which is 67% LTV and 83.3% LTC, producing a 35% ROI on your investment, all completed within one month of purchase.  That's about as much leverage as I want anyway.

As far as HELOC's go, I'm assuming that most people want to lock up long term fixed rate loans, not have a ton of floating rate debt at whatever point the worlds' lenders ascertain that the future US govt cash flows available to somehow repay the spiraling debt and unfunded liabilities (a mere $100T or $1M per household), are woefully and absurdly inadequate.

Conventional Mtg 'Delayed Financing' Rule Success?

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