Real Estate Broker · Indianapolis, IN · Member since 2013 · 37 posts · 10 votes
Listened to Podcast again 233 last week, with Arianne Lemire. I am interested to learn more about this strategy. Can someone explain to me in greater detail how this works? What are the requirements? Can it be done with an initial loan to buy the property, then refi?
Jeremy Rotert
I am doing this right now. I bought a property for $65,000 cash. A few days later I called a local bank and told them I wanted to do it. The loan officer looked it up (he didn't even think it was possible) and we are moving forward. He told me they could give me a mortgage of up to 70% the appraised value up to the purchase price.
The appraisal will take place near the end of November so I have about a month to get work done so it appraises well. If everything goes right I will get 100% of the cash I invested back minus the loan costs.
@Jeremy Rotert can you help us out with describing what is being talked about in that Podcast? Were they describing how to get around delayed financing? There is a lot to this subject.
Jeremy Rotert
I am doing this right now. I bought a property for $65,000 cash. A few days later I called a local bank and told them I wanted to do it. The loan officer looked it up (he didn't even think it was possible) and we are moving forward. He told me they could give me a mortgage of up to 70% the appraised value up to the purchase price.
The appraisal will take place near the end of November so I have about a month to get work done so it appraises well. If everything goes right I will get 100% of the cash I invested back minus the loan costs.
Arianne was speaking specifically about her first deal in real estate investing. She purchased a property for $50,000. She then was able to immediately take out a cash out refinance loan through Fannie Mae for 75% LTV. She then used that cash to fund another purchase. The initial property that she purchased was already rented to a long-term tenant, and was a cash flowing situation for her. This seems like a viable strategy, but I am having difficulty finding specific details on how it works, and what qualifies.
If you use hard money, then you have a lien to pay off and I don't believe it fits in the realm of Delayed Financing anymore. More like a Rate & Term refi.
@Jeremy Rotert Ah, ok, thank you for the help. I can certainly help with this. If you buy a home WITH cash, then you are allowed to receive a cash out loan. The "conventional" guidelines are that cash out loans are not permitted in the first 6 months of ownership....unless you purchase with cash or with a HELOC. If you did buy with cash or a HELOC then you can only receive back the cash that you used to buy the home itself. I did a pretty length post on this and I will include the link below. Feel free to ask more questions if you need. Thanks!
The original purchase transaction is documented by a settlement statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee's deed (or similar alternative) confirming the amount paid by the grantee to trustee may be substituted for a settlement statement if a settlement statement was not provided to the purchaser at time of sale.)The preliminary title search or report must confirm that there are no existing liens on the subject property.
The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property).
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 settlement statement for the refinance transaction must reflect that all cash-out proceeds be used to pay off or pay down, as applicable, the loan 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.Note: Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan.
The new loan amount can be no 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 on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value).
@Andrew Postell@Will Wiggins@Jack Forester thanks for added clarity but I guess I am still confused as to how folks are accomplishing cash out refi without 6 month seasoning and getting their total acquisition back (purchase and rehab). What am I missing? Is it just as simple as recording rehab costs on the settlement sheet?
@Andrew Postell@Will Wiggins@Jack Forester thanks for added clarity but I guess I am still confused as to how folks are accomplishing cash out refi without 6 month seasoning and getting their total acquisition back (purchase and rehab). What am I missing? Is it just as simple as recording rehab costs on the settlement sheet?
The way the source document reads is: 75% of appraised value (75% ARV if you wait) not to exceed purchase price plus closing costs. Not repairs.
Eg -
House purchase cost: $60k
Closing: $1,500
Repairs: $8k
Appraisal: $100k
DFE ReFi amount: $61,500
Notes-
$75k is technically 75% of the ARV
DFE payout is only $61,500
$8k is “left in the deal” because buying with cash and using DFE only allows you to pull out 75% of the appraised value NOT TO EXCEED original purchase price + closing costs
You leave $8k in this deal for the convenience of conducting the ReFi under DFE rules, vice waiting 6-12 months for a traditional cash out ReFi seasoning period. It’s all up to your strategy, how much cash you have, how much cash you need, and how much your repairs will cost you, amongst many other variables I am sure.
Wow, talk about a blast from the past! A post from 10 months ago - no problem really. All the information is the same. @Jack Forester you do not need to show the rehab costs on the settlement statement with the link I shared above. That step is not necessary. @Shekeira Ward please do check out the post I mentioned above for the "how to". If you know the restrictions on delayed financing then just pay attention to the 3rd section of the post. That will explain what to do. I'm in Texas so feel free to reach out at any time.
@Will Wiggins you are correct in siting the Fannie Mae material about delayed financing but that is why the method I wrote about is so important. No need to wait the 6 months and your interest rate is better too.
Feel free to tag me with any other questions. Thanks!
Can someone tell me when doing a delayed financing will double closing cost need to be paid or is there a way to set it up in order to avoid this higher cost?
I found inheritance property two houses and property . If I can get a owner financing deal for 6 months , pay asking price to seller land contract for 6 months then cash out and pay balloon , Will this work if the numbers are right?
Hi all- Looks like most of the main DFE considerations have been covered above. I won't rehash the DFE guidelines/restrictions but do have some additional thoughts. I've purchase 3 homes with DFE and refinanced within 2 months on the first two (basically start the refinance process when I have 2 weeks of rehab left). I'm in the middle of the 3rd. I love the no seasoning but my early hangup was the limitation of not being able to include rehab.
My first deal I simply left the rehab cost in the deal and refinanced (75% LTV) the rest of my cash out.
My second deal was unique/ideal in that it was just a great deal with equity margin without needing force equity. Rehab was 4k and I still hit my appraisal target and refinanced (75% LTV) all of my cash out (including closing costs) and just left in the 4k.
Then before my 3rd DFE, which I'm processing now, I came across the podcast and article with Alexander Felice, in which he outlined how to include the rehab on the settlement statement. https://www.biggerpockets.com/forums/311/topics/644493-brrrr-delayed-finance-exception-how-to-get-rehab-budget-on-hud-1 My refinance lender said that would not be an issue, and my only additional nuance is that I added a step so I wouldnt' simply send the contractor 100% of the rehab invoice at closing. I sent the title company the rehab invoice, which they included on HUD. But I also requested that the title company send me (4) checks addressed to the contractor at closing. So now I hold the 4 checks and will give them to the contractor 1) startup, 50% complete, 75% complete, and upon completion. I'll let you know if I run into any additional hurdles but so far so good.
For those interested in quick refinance without having cash up front. I'm seeing a lot of new loan products that function similarly assuming your DTI and other criteria qualify for the initial loan. Example: Puchase + rehab loan with zero down that is a paired product with the refinance loan. You have a strict 90 days for the rehab. The initial loan has a 1.5% origination fee and interest only payments during the 90 days. The lender also requires that you submit the contractor invoice/scope for their approval before the first loan can close. Then as soon as rehab is complete and no later than 90 days or significant penalty, you can refinance 75% LTV of the new appraisal. No extra origination fees for the second loan... just standard refi fees.
@Seth M. yes, you can continue to do all of those steps but you still are paying a higher interest rate and you are limited to 75% of the value of the property at best. In the link I provided above your rate would be lower than the Delayed Financing strategy....and you would have the option of getting 80% or 85% back on the transaction.