Fannie Mae Delayed Financing Cash Out Question

10 Replies

I know a mortgage normally would not fit under the 'creative financing' category, but this is a special category, so I thought I would give it a try here. My wife and I bought a property two months ago planning on flipping it. Then probably about the 100th time we heard the word BRRRRRRRRRRRR (right number of R's?), we got the 'novel' idea to leverage the property and rent it out like we do with the rest of our properties. We are fast learners, probably only took us 20 podcasts to come up with that idea!

Here's the question: We are having trouble finding a lender in Memphis or TN who can do a delayed financing cash out. We tried a national lender with experience in these (Quicken), but unfortunately, our balance would have been too small $60,000 and they need $75k.

Going to try to make this as easy as possible:
You can get up to 75-80% of the appraisal of the house IF you don't have a loan on it. That vale is after all rehab is done....

If you do have a loan on it, you can get 75-80% of the purchase price OR purchase price plus rehab costs.
For a traditional loan it has to be 50k (generally speaking) for it to be worth the banks time. Now this is going to be more of a location thing... if all the the houses in your area are low dollar amounts then local bank more likely to make a loan for that. But generally speaking it's not worth their time to do small loans like that.

So for example:
50k house, 30k rehab cash. You can pull all 80k by doing a cash out refi IF your house is worth 100k. If it's only worth the 80, you aren't getting all your money out. 

I'd suggest find local credit union, if you need a referral to national lender I can give you one if you want but loan will need to be 50+ and probably only 75% out.

@Tristan Hayes the small loan amount thing is a very common issue.  Banks actually lose money on loans of this size (some people have car loans this amount) so I get why some banks don't do these types of loans but it's annoying.  There are lenders who will do loans this small but you'll have to keep calling around to find one.  I can recommend one bank there so PM if you would like. I also wrote an pretty lengthy article on this topic too if you would like to review it CLICK HERE

Matt,

Thanks. It looks like the small lenders will not do the delayed financing program. They will only do a cash-out based on appraised value (after renovations) at 6-months. The beauty of the delayed financing program from Fannie is that you can do a 'refinance' even though the property itself is not encumbered by a loan. In our example, we used a HELOC from our business to buy the property. We can show that the wire came from our HELOC to buy the property, so Fannie will let us take out a loan to pay down the HELOC, just the same as if we were refinancing a mortgage on the property. Well, we can if we find a lender that does the

It's a neat program; it lets you pay 'cash' and then get a normal 30 year loan on appraised value without having to wait till you get to the 6th-month mark.

Hi, @Tristan Hayes . Have you talked with Steve Bighaus at Sierra Pacific Mortgage?  Your situation sounds like his specialty.

Originally posted by @Tristan Hayes :

Matt,

Thanks. It looks like the small lenders will not do the delayed financing program. They will only do a cash-out based on appraised value (after renovations) at 6-months. The beauty of the delayed financing program from Fannie is that you can do a 'refinance' even though the property itself is not encumbered by a loan. In our example, we used a HELOC from our business to buy the property. We can show that the wire came from our HELOC to buy the property, so Fannie will let us take out a loan to pay down the HELOC, just the same as if we were refinancing a mortgage on the property. Well, we can if we find a lender that does the

It's a neat program; it lets you pay 'cash' and then get a normal 30 year loan on appraised value without having to wait till you get to the 6th-month mark.

I wonder if you are getting issues because of the HELOC, I know plenty of people do it but I think some people run into issues when they outright mention HELOC. But yea familiar with delayed financing, but also another thing isn't there a cut off for it (can't remember the time limit off top of my head). I want to say it's like 3-6 months then after that you have to season it. I could be wrong on that though, haven't researched it.

Hello @Tristan Hayes I have personally done this and helped a couple other people do this as well. Your questions is great for Steve Bighaus and/or I personally used Aaron Chapman with SNMC to accomplish this. Let me know if you have any questions about this. 

@Matt K. Apologies, it was a business LOC, and yes the time limit is 6 months. After the 6 months, we can do a normal cash out.

@Sean Tagge I came across Bighaus' posts on the program, but didn't know he was licensed in TN. I will check out Aaron Chapman.

Thank you everyone! 

@Tristan Hayes

I believe delayed financing only works if you don't have a loan on the property.

If you have a loan, you'll be working on a refi, and you'll need to wait certain period (6 months?), depending on the seasoning requirement.

Banks usually have a $50K minimum loan requirement to make it worthwhile for them so like what @Matt K. wrote, look into local credit unions to see if you can get lower loan amount there.

Good luck there.

Henry

Originally posted by @Tristan Hayes :

@Matt K. Apologies, it was a business LOC, and yes the time limit is 6 months. After the 6 months, we can do a normal cash out.

@Sean Tagge I came across Bighaus' posts on the program, but didn't know he was licensed in TN. I will check out Aaron Chapman.

Thank you everyone! 

 That is correct, I've done many of these personally.

If you have:

- #1 debt or a lien on the property currently you can do a regular rate/term refinance instantly or wait till 6 months to cash out based on fair market value or FMV

- #2 if you bought the property cash then you can refinance up to 70% of FMV or your total acquisition cost that you paid for the property whichever is less (often times if you got a good deal your total acquisition is less than 70% of FMV)

After 6 months, the cap, "70% of FMV or total Acq cost whichever is less," falls off and you go back to regular guidelines of 75% cash out on an investment 1 unit property with no caps (2-4 unit property is 70% cash out on conventional).

Hope that helps clarify the transition point of 6 months and the cash out differences before the 6 months and after 6 months.

If you plan it carefully all of these cash flow hurdles will be a moot point.

Best,

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