Delayed Financing Exemption?

7 Replies

Can anyone educate me about using "delayed financing exemption"?

For example, if my partner and I found a property that was a foreclosure and needed a bit of work, can we use our HELOC's to buy it outright with the cash, take a few weeks/months to fix it up for some value-add, then apply for financing?

Would the balance on our HELOC's impact our DTI too much or would we just make it clear on the loan app that the refi would be used to pay off that HELOC debt?

Josh Daniel's talked about this strategy on the podcast, but he's using a commercial LOC for his, so it's a bit different.

@Wendy C. I wrote a pretty extensive article on it HERE

Let me know if you need any additional information.  Thanks!

You can use HELOC to buy this property. That will be consider as a cash purchase. You can cash out as soon as you fix the property. You are paying off HEOC but if that is still open, lender will consider in DTI.

Wendy, as a banker, there is a place in the application that where we can say that the loan proceeds are going to be used to pay off an existing loan. At that point it really becomes a wash. Shouldn't be a problem.

However, I have heard that delayed financing needs to be done within, or started within, 30 days. Thats just hearsay though, i'm not an expert. 

Thank you, Andrew, Harjeet, and Robert! I appreciate your responses! 

Andrew, VERY helpful article—THANK YOU!!

(It’s not letting me tag people for some reason!)

@Wendy C. Addendum: I just reread this and I want to clarify something.  What I said earlier is not accurate in this situation.

As Harjeet mentioned, using money from a HELOC would be considered a cash purpose. The cash from the heloc is secured by the collateral of your other property. Thus there is NO LIEN against the property you are looking to purchase.

As for your DTI, when you go to qualify it doesn't matter if you have your full line taken out or none. For my bank, we consider a certain percentage of your full line of credit to be your monthly payment, and use that number to calculate your DTI.

Other banks may vary, but that is how we would process it.

Cool, thanks, Robert!
Originally posted by @Wendy C. :

Can anyone educate me about using "delayed financing exemption"?

For example, if my partner and I found a property that was a foreclosure and needed a bit of work, can we use our HELOC's to buy it outright with the cash, take a few weeks/months to fix it up for some value-add, then apply for financing?

Would the balance on our HELOC's impact our DTI too much or would we just make it clear on the loan app that the refi would be used to pay off that HELOC debt?

Josh Daniel's talked about this strategy on the podcast, but he's using a commercial LOC for his, so it's a bit different.

Depending on what bank you go to, some banks have over lays which will still hit you for the monthly payment on the HELOC's even though you intend to pay them off through the DFE (delayed financing exception) refinance.

One bank that comes to mind is Chase, as far as I know sometimes calculate 1% of the open line for the HELOC as a monthly payment (even if your balance is $0.00) and they hit your DTI with this payment which can have disastrous effects on your ability to qualify.

Typically if your lender goes off FNMA guidelines (with out added overlays) we should be able to remove the payment calculation for those specific funds from your HELOC that were used to purcahse the property because the new DFE refi loan will be paying down your HELOC to the original balance prior to the cash purchase and is already being counted against you. Counting this added HELOC payment and the new DFE loan would be double counting liabilities after the fact. This is how my underwriters have worked so far. I cannot say this is how all other banks will interpret the FNMA guidelines.

I hope that helps.

Good to see you're a local investor.

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