How To Best Structure A Delayed Financing Deal!

[Jerry Padilla]

Want to move faster with your cash out refinance on an investment property with conventional financing?

The typical waiting period for a cash out is 6 months.

You can do sooner with delayed financing if you paid cash - with the restriction of pulling out a max of the purchase price plus closing costs prior to 6 months. Delayed financing you still go according to the current appraised value of the property.

Now, Here is the Catch!

If you include on your closing statements (which vary state to state - HUD-1/ALTA statement ) the renovation costs - and have them charged at closing...... This renovation cost now becomes an initial closing cost and can be included with the max that you are able to pull out prior to 6 months.

With this scenerio, Here is a quick example:

Purchase price: $100k

Closing costs: $5k

Renovation Money Escrowed: $45k

3 months the job is completed and you are now ready to refinance and get your money back.

New appraisal comes in at $200k

Your all in for $150k at closing.

For a SFR at an LTV of 75% you can cash out the full amount of $150k

For a MFR at an LTV of 70% you can cash out $140k

In this scenerio, if you paid cash, you could now recoup your investment for the same amount of cash as you would have, if it would have been after 6 months since you weren't limited to the $105k if the renovation money wasn't escrowed.

Now let's say the property was valued at $300k

You will still only be able to pull out a max of $150k as that is your initial investment. So at this point you would want to wait until the 6 month mark to cash out more of your investment. The good news is, you already started the process and can cash out at 6 months and 1 day!

DELAYED FINANCING EXCEPTION GUIDELINES!

Delayed Financing Exception

A cash-out refinance within 6 months of a purchase transaction when no financing was obtained for the purchase transaction. Delayed financing is allowed under the following parameters:

• The new loan amount is not 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).
• CASH OUT FINANCING AND DELAYED FINANCING HAVE THE SAME LTV REQUIREMENTS - BUT DELAYED FINANCING IS SUBJECT TO A MAX OF PURCHASE PRICE PLUS CLOSING COSTS.
• The purchase transaction was an arm’s length transaction
• The purchase transaction is 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 no liens on the subject property.
• The source of funds for the purchase transaction can be documented (bank statements, personal loan documents, HELOC on another property). Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1
• Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan. Funds of gifts are not allowed with investment purchases.
• All other cash-out refinance eligibility requirements are met and cash-out pricing is applied. This is allowed on primary residences, second homes and investment properties per cash-out guidelines.

Here are some links that you may find beneficial as well!

Freddie Mac's Guide to Refinancing, including Cash Out.

Fannie Mae's Guideline to Cash Out Financing.

Fannie Mae Guideline for Cash Out, Mortgaged Property 5-10.