Hi BP!

I bought and rehabbed a property back in July 2019 and I financed the whole deal with my HELOCS. The property rented out after a couple of days on the market and I'm trying to do a cash out refinance so I can pay off my HELOCS and repeat the process over again. The lender I selected said that he could do the cash out refi and close in about 30 days. After paying for the appraisal and going through underwriting, my lender said that I will have to wait 6 months because of a Conventional rule called delayed financing. He also said that apparently this is a Freddie and Fannie guideline. I wish he would have told me before I paid for the appraisal. Anyways, I'm I met another lender that's saying he can do the refi without a seasoning period. I don't want to pay for another appraisal and have the same thing happen again. Does anyone know about a Conventional Rule called delayed financing? Also, since I practically did a cash purchase for the property, why would I have to go through a seasoning period? I appreciate all input in this matter. Thanks!

Hi Evan!

Hi Evan!

It’s a little strange that your first lender would invoke the delayed financing rule when telling you six months of seasoning is required. The whole point of the delayed financing rule is to allow a cash back refinance for a property purchased for cash within the first six months after the purchase.

I am in my car right now, but can post a link to the Fannie Mae guidelines… Or perhaps one of my other BP lending colleagues will do so before I get the chance.

 I am in my car right now, but can post a link to the Fannie Mae guidelines… Or perhaps one of my other BP lending colleagues will do so before I get the chance. (or they are very googleable.)

You should take the guidelines back to your original lender, and they should be able to fund the loan with the appraisal they have.

You will be required to show a few things:

 You will be required to show a few things:

1) that the property is owned free and clear.

2) the source of funds used to purchase the property. Prepare to show HELOC and bank statements with the draw of funds used to close.

3) you will be required to pay back any borrowed funds out of escrow… But that's OK since paying back your HELOC is what you want to do anyway.

God luck! 

@Evans Murray very sorry that this has occurred.  It's always frustrating to hear a story like this...and you are certainly not alone.  I've been wrestling with how to answer this...mainly because I could write a book on this subject (and have tons of posts on it already) but I'll summarize with 2 points:

1. Lender Type - and how to choose a good lender
2. How to structure your cash purchases (and you should always avoid delayed financing)

1. Lenders - I almost want you to think of lenders like athletes.  If you ask someone, "can you play baseball"...most people would say "yes"...because they can play in your company inter-mural league.  But very few people can even be an amateur baseball player....and even less would be a professional.  Same with lenders.  They will all say "yes, I can do investment properties"....but most do about 1 investment property loan per 100.  And those lenders are no way our friends.  So how can you tell which lenders are any good?  How can you tell which ones are the professionals?  I've make a list of questions you can ask to see which ones are any good with investors:

Questions for Lenders

1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
2. When do you start using “After Repair Value” on my property?
3. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
4. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
5. How many loans can I have with you?
6. Can I change title to my LLC?
7. Do you sell your mortgages?
8. What is your loan minimum?
9. Can you explain to me what your reserve requirements are?

Quiz your lenders on those questions to see how flexible they are with us as investors.

2. How to properly structure your cash purchases - I wrote an entire post that you can read HERE. It even outlines what the delayed financing rules are...and how you can avoid them.

I certainly hope some of this information helps.  Let us know if there's anything else we can help with.  Thanks!

Originally posted by @Evans Murray :

Hi BP!

I bought and rehabbed a property back in July 2019 and I financed the whole deal with my HELOCS. The property rented out after a couple of days on the market and I'm trying to do a cash out refinance so I can pay off my HELOCS and repeat the process over again. The lender I selected said that he could do the cash out refi and close in about 30 days. After paying for the appraisal and going through underwriting, my lender said that I will have to wait 6 months because of a Conventional rule called delayed financing. He also said that apparently this is a Freddie and Fannie guideline. I wish he would have told me before I paid for the appraisal. Anyways, I'm I met another lender that's saying he can do the refi without a seasoning period. (1) I don't want to pay for another appraisal and have the same thing happen again. (2) Does anyone know about a Conventional Rule called delayed financing? Also, since I practically did a cash purchase for the property, why would I have to go through a seasoning period? I appreciate all input in this matter. Thanks!

 Sorry this happened to you. I broke your questions down into 1 and 2 in the quote above.

1) For "coin toss" cases like this, I'll submit to underwriting without ordering an appraisal. You're getting a pass on shelling out the upfront money, but not on the paperwork. I'm sure you can find someone in your state that will do that too.

2) Yup, the "Delayed Financing Exception" is a thing. There's not enough nitty gritty detail in your OP to speculate on if it would work for you or not, but evidently someone you spoke to thinks they can make it work.

I'd suggest checking with whomever you spoke with, see if they will submit to underwriting with ALL paperwork (be crystal clear on your willingness to provide all paperwork) but no appraisal order. A reasonable LO will want you to have some "skin in the game" to go through that ($0 per hour) process of submitting it, you're basically asking them to count your willingness to provide ALL requested paperwork as that "skin." We don't make a dime on appraisal orders, the "real" reason we order appraisals is specifically for that "skin in the game" to give us reasonable assurances that we're not wasting our time.

Hmmm, it sounds like you didn't get very good communication from your 1st lender. 

The delayed financing loan, allows you to do a cash out refinance within the 1st 6 months that you are on title, with a couple of caveats. You cant have any lien on the property. Basically you had to have either paid cash or like in your case, you used a HELOC from another property.

You can do the Delayed Financing up to 75% on a non-owner occupied property and 80% on an owner occupied property. However you can only get the amount you paid for the home +closing costs rolled into the loan. You cant get any rehab money back out, as its only the acquisition costs + your refinance closing costs as a max. loan amount. 

If you want cash out for more than the acquisition costs, you must wait until you have been on title for 6 months, at which point you can have up to 75% Non-Owner or 80% Owner Occupied without the limits of acquisition and closing costs. 

These are Fannie Mae loans. The lender that you are working with now, is probably setting you up with a Non-QM or Portfolio loan. On some of these loans, the seasoning time before cash out can be zero waiting time to 3 months. If you are doing a portfolio loan, the interest rate tends to be about 2% higher than a Fannie Mae loan on a 5/1, 7/1, 10/1 ARM.

You're at the age old cross roads of do I wait out the 6 months to get the best rates and terms (Fannie / Freddie) or do I take a higher rate to be able to access the cash within the 1st 6 months, or do I do Delayed Financing and only get the acquisition costs plus refinance closing costs? Its only going to come down to 1 of those 3 choices. 

I hope this helps?

Thanks for all the excellent information! This was my first investment property and I truly appreciate all the support. I ran into the same situation with my new lender but luckily he called me before ordering the appraisal. So I decided to take the conservative route and wait the 6 months to get the best rates and terms (Fannie/Freddie). Thanks again!