During these unprecedented times in the world of residential real estate, a financing strategy commonly known as “delayed financing” has become a wonderful tool for many home buyers.  The current lack of housing inventory is astounding to many and unprecedented in recent history.  Historically low inventory has lead to a highly competitive, cash-heavy market and in Southwest Florida, many would-be homebuyers will not even attempt to make an offer on a new listing, as they believe, or are led to believe by others, that their offer stands no chance unless it is a 100% cash offer, free of contingencies and all rights to inspect the property are waived.  This may be true in many instances, but for potential homebuyers who have the necessary funds to pay cash, but do not necessarily want to permanently deplete other assets, retirement accounts, etc.., there is an outstanding alternative, referred to in the mortgage industry as “delayed financing.”

History of the delayed financing exception:

Those of us who were in the industry during the collapse of 2008 clearly remember witnessing the precipitous rise in real estate inventory that followed the subprime collapse.  In those days, listings on the market were abundant, to say the least.  Financing options for homebuyers tightened and listings sat, and sat.  The homes became dilapidated, grew toxic mold and sellers felt as if they could not give them away if they wanted to.  Investors could pay cash for a property, but then would have to wait 6-12 months before attempting to refinance and recoup a portion of their investment.  Real estate investors were very hesitant to tie their funds up in single family homes for an extended period of time, in a declining market and during horrific economic times. 

Then, in 2011 the the powers that be (Fannie Mae and Freddie Mac) instituted the delayed financing exception, which made it possible for buyers to purchase a property for cash, then immediately turn around apply for a “cash-out refinance” to recoup a large portion of their initial investment .  This guideline change was music to the ears of many investors, who then proceeded to purchase, rehab. and either rent or flip distressed homes at a much higher rate.

Now, in 2022 the delayed financing exception is quickly coming back into play, however for a different purpose.  In many markets around the country all cash purchases are surpassing 50% of transactions.  Financing-contingent buyers purchasing primary residences or second homes in Florida, are having offer after offer declined; one solution may be the delayed financing exception.  Many of these buyers have other liquid assets, retirement accounts or other real estate that can be leveraged to allow them to purchase their new home for cash, however they do not want to tie these assets up for an extended period of time.  By using the delayed financing exception, many of these buyers can buy for cash, then immediately turn around and recuperate the majority of their initial investment with a cash-out refinance.

There are a few caveats to the delayed financing exception, outlined by Fannie Mae as follows:

*”Borrowers who purchased the subject property within the past six months (measured from the date on which the property was purchased to the disbursement date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met.:

 The original purchase transaction was an arms-length transaction.

 The borrower(s) may have initially purchased the property as one of the following:

• a natural person;
• an eligible inter vivos revocable trust, when the borrower is both the individual establishing the trust and the beneficiary of the trust;
• an eligible land trust when the borrower is the beneficiary of the land trust; or an LLC or partnership in which the borrower(s) have an individual or joint ownership of 100%.

The original purchase transaction is documented by a settlement statement, which confirms that no mortgage financing was used to obtain the subject property. A recorded trustee’s deed (or similar alternative) confirming the amount paid by the grantee to trustee may be substituted for a settlement statement if a settlement statement was not provided to the purchaser at time of sale.

The preliminary title search or report must confirm that there are no existing liens on the subject property.

The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property).

The new loan amount can be no 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 on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value).”

*Per Fannie Mae Selling guide, 3/2/2022

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As you can see, the requirements for the delayed financing exception are not all too difficult to meet; most cash purchases these days would qualify.

For those potential homebuyers looking to purchase now, but who may not want to permanently deplete their savings, liquidate other investments or their retirement accounts, this is definitely a most viable financing option.  Buyers can tap into their retirement accounts, HELOCs on other properties, savings, etc…to purchase the property for cash, then immediately proceed with a cash-out refinance to recuperate the majority of their investment.  In addition, if the buyer is -unsure if they will qualify for the cash-out refinance, an experienced mortgage loan originator can easily pre-approve the buyer for the future cash-out refinance, prior to their cash purchase.

In conclusion, when executed properly, a home buying strategy employing use of the delayed financing exception can make all the difference in whether or not a home buyer achieves their goals in our current, highly competitive, cash-heavy real estate market.  For more information, please feel free to reach out to me any time.

Peter Vrehas

Broker/Owner 

Naples Mortgage Company

NMLS: 250949