What Is Delayed Financing For Cash Deals?

For home buyers purchasing with cash, all their money gets effectively tied up in the property. Some all-cash buyers explore delayed financing to retrieve a portion of their initial investment.

Delayed financing offers prospective homeowners significant upsides. They can enjoy the benefits of making a cash offer on a house while still securing a mortgage that helps them stay within their budget as they make monthly payments.

What Is Delayed Financing?

Delayed financing is a strategy for getting a mortgage after purchasing a piece of real estate with cash. You buy a home with cash and then take out a cash-out refinance to mortgage the property. With the cash-out refinance, you can recover a large portion of the money you paid to purchase the home and use the cash for activities like:

• Building your savings
• Making investments
• Paying for renovations
• Paying off high-interest debt
• Purchasing a second home

How Does A Delayed Financing Mortgage Work?

In a delayed financing transaction, you buy a home with cash then immediately obtain a mortgage to recoup a portion of the purchase price. Delayed financing allows you to make an all-cash offer – which is usually very attractive to home sellers because they’re more confident the transaction will close. And it puts money right back in your pocket.

With delayed financing, you get a mortgage with a cash-out refinance and enjoy the flexibility of making long-term payments over the life of the loan. This financing strategy helps you avoid tying up all your savings in a home.

Cash buyers can experience immediate benefits and may be able to refinance soon after closing, depending on their situation.

Is The Delayed Financing Process Different Using Government-Backed Loans?

Delayed financing is generally limited to conventional mortgages or jumbo loans. Rocket Mortgage^® doesn’t offer delayed financing for Federal Housing Administration (FHA), Department of Veterans Affairs (VA) or U.S. Department of Agriculture (USDA) mortgages. These loans have unique requirements around the types of properties buyers can finance and the condition they must be in before a buyer can close on the loan.

Who Might Want Delayed Financing?

With delayed financing, buyers pay out of pocket for properties. Let’s explore the types of buyers who typically pay in cash and pursue delayed financing.

• Rehabbers: Most traditional lenders won’t approve a mortgage for fixer-upper properties that require extensive work. Rehabbers generally end up buying with cash and use delayed financing to access their equity for renovations.
• Empty nesters: Many empty nesters have paid off their existing mortgage loan and use the proceeds from the sale of their home to purchase another home with cash. They may use delayed financing to get the funds they need for home upgrades or improvements.
• Real estate investors: Investors looking for deeply discounted homes frequently buy properties at auction and pursue foreclosure and short sale opportunities. An all-cash deal is an appropriate way to fund these transactions, with delayed financing providing quick access to capital for additional investments.

Delayed financing is generally a popular choice among all-cash buyers looking to maximize liquidity and the number of investment properties they can acquire.

Delayed Financing For Investment Properties

If you buy an investment property with a mortgage instead of cash, your name must be on the property’s title for a certain amount of time before you can refinance the property and pull any cash out.

This is why buying properties with cash benefits investors. They can take cash out faster with delayed financing than they could with a cash-out refinance. Delayed financing is an important tool in a real estate investor’s arsenal. These transactions help investors remain liquid, which allows them to buy more properties.

What Are The Eligibility Requirements For Delayed Financing?

Borrowers must meet lender and loan criteria to qualify for delayed financing, including:

• Mortgage loan limits: The total mortgage amount can’t exceed the home’s purchase price, closing costs, prepaid fees and points. If you want to tap into the property’s increased value after renovations, you must wait 6 months before you can apply for a cash-out refinance.
• Cash proof: Applicants must prove they can pay for the property in cash.
• Proof of funds: Applicants must provide documentation proving the source of funds they’ll use for the purchase to comply with rules and regulations to prevent money laundering.
• Arm’s length transaction: To help avoid allegations of tax or mortgage fraud, borrowers should purchase a property in an arm’s length transaction – meaning you don’t have a preexisting relationship with the seller, which is the case in a non-arm’s length transaction.
• Gift letter: Borrowers must provide a gift letter for any funds a third party contributes. The letter must clearly state the funds are a gift, and the donor doesn’t expect repayment. Additionally, the letter ensures the funds aren’t a loan, which would increase a borrower’s debt-to-income ratio (DTI), helping lenders develop a clear understanding of a borrower’s overall debt load.
• Reimbursed funds: If you received gift funds to help purchase your property, you can’t reimburse the donor from the proceeds of your delayed financing.
• No liens: The property must be free of liens.

Pros And Cons Of Delayed Financing

Delayed financing is a unique way to obtain a mortgage. It’s crucial to understand the advantages and disadvantages of this financing option.

How To Get Delayed Financing

Assess your situation with a real estate or financial professional. They can help you determine whether this type of transaction makes sense for your goals and whether you meet the eligibility requirements for delayed financing.

As the final step, you’ll submit a mortgage application after closing on the property.

How Does An Appraisal Work With A Delayed Finance?

You should have more than 20% in cash reserves to cover the potential difference between a home’s appraised value and purchase price. You can also avoid private mortgage insurance (PMI) by making at least a 20% down payment.

The Bottom Line: Delayed Financing Can Give You An Advantage

Delayed financing allows buyers to make an attractive all-cash offer on a home and enjoy the flexibility of a long-term mortgage. This financing strategy will let you stay cash-liquid while maximizing your ability to acquire real estate.

Ready to gain access to the money in your house? Get started on a cash-out refinance and take advantage of the benefits of delayed financing.