If you’re doing a delayed financing transaction on a property you purchased in the last 6 months, you’re allowed to take cash out immediately without any waiting period.
Under normal circumstances, if you bought a home with a mortgage instead of cash, you have to be on the title at least 6 months before you can take cash out and refinance your home, so delayed financing is a notable exception.
When Would You Use Delayed Financing?
So now that you understand what delayed financing is, you might wonder why you would choose it over more common financing options like getting a mortgage upfront and sticking with it or doing a cash-out refinance down the road.
Well, aside from being able to take cash out on the home without waiting for seasoning, there are some other reasons it might be a good option.
Pros Of Using Delayed Financing
There are lots of reasons why delayed financing might be beneficial to your financial picture and business needs. Let’s take a look at some.
- You may be trying to buy a home in a red-hot real estate market and be forced to offer all cash, even though it took all the cash you had. In some markets – notably (pre-pandemic) San Francisco and New York City, and currently in markets all over the country – buyers are being forced to make all-cash offers to have any hope of getting sellers to accept, even if it leaves them in a tight cash bind.
- A mortgage might not be feasible at the time of purchase. Trying to buy foreclosures and short sales can complicate the mortgage process and sometimes make it impossible to get approved for financing. That’s why liquidity is all-important to real estate investors, and why taking cash paid for a home out through delayed financing is important for the next deal.
- When buying an investment property, you may not want to pay on a mortgage until it’s payday loans Zanesville Ohio time to rent out the property. Once you’re ready to buy another property, delayed financing can free up the cash you spent on the first investment property, so you can buy another one or use the cash in some other way.
- You might accrue unexpected debt after buying a home with cash, or you might just need more liquid assets. Either of these scenarios would be difficult to resolve if you spent all your cash on the purchase of a new home, but delayed financing can help with that.
- You might be a real estate investor who needs to ease your tax burden. If you buy and sell homes a lot, you might want to consult a tax advisor to see how delayed financing can benefit you. As an example, you can often deduct mortgage interest from your taxes.
Cons Of Delayed Financing
- You need lots of cash upfront to buy a home because you won’t be getting the mortgage upfront. This can be a challenge if you don’t have lots of available assets.
- There’s some additional documentation required to get a loan with delayed financing. In addition to the usual mortgage documentation, you would need regarding income, assets and credit, you need a few more items. We’ll get into them below so you can be prepared.
- This is only offered on conventional and jumbo loans.Conventional loans are backed by Fannie Mae or Freddie Mac and are not FHA, VA or USDA loans, but must comply with some rules for resale, which we’ll discuss below. Jumbo loans are nonconforming because they exceed the maximums allowed for conforming loans.