Buying with cash and then refinancing it back: FNMA delayed financing

Q:  How soon can you refinance a piece of real estate after you’ve bought it, if you acquired it with cash?

A:  The very next day!  (maybe)-  thanks to a quirky provision in the Fannie mae guidelines called “delayed financing”.

Delayed financing is actually priced as “cash-out” money, and is restricted to the loan to value ratios of a “cash out” refinance.  One can use delayed financing for a primary residence, a second home, or even an investment purchase (up to 4 units).

Because of this cash-out pricing aspect, this type of loan is more expensive than a straight purchase money mortgage.  (maybe up to .25% in rate higher).  But there may be serious advantages to being that cash buyer that allows you to get a significant edge on the purchase.

There are some documentation quirks that must be planned for if you want to embark on this type of mortgage financing.  We must prove that the subject property has no liens attached, and we must also document how the property was acquired.  Ideally, you’ve purchased the property with a check from your checking account (and have no large deposits in the month that you bought).  But its also acceptable to have bought the property with credit secured to another property.  The trick here is that if you get the delayed financing, that money you access MUST get completely re-applied to that original debt source.

You also must close this loan in the first 6 months of ownership.  Once that window has closed, you are likely restricted to waiting 12 months before being able to get mortgage financing.  Once that 12 months has elapsed however, you will be able to use the appraised/market value as the basis upon which that loan is extended.  Before that one year anniversary, you’ve got delayed financing or no financing!

There may be some “portfolio” type programs that you could get during this 6 month “dead zone”, but unless you’re totally strapped, I would bet the FNMA/conforming loans will almost always be your least expensive money.

Posted in

Leave a Comment