What is Delayed Financing And When Would It Be a Good Loan Option?

 Delayed financing is a mortgage strategy that allows homebuyers to purchase a property with cash and then quickly refinance the property to recoup their funds. This approach is particularly beneficial for buyers who want to make a strong cash offer, which can be more attractive to sellers, and then secure a mortgage afterward to recover their cash for other investments or liquidity needs.

Here’s a breakdown of how delayed financing works and its benefits:

How Delayed Financing Works

1. Cash Purchase: The buyer purchases the property entirely with cash.
2. Title and Documentation: After the purchase, the buyer must ensure that they have clear title to the property and that all necessary documentation (such as the Closing Disclosure) is in place.
3. Refinance Application: The buyer applies for a cash-out refinance almost immediately after the purchase. Most lenders allow this to happen as soon as the title is recorded, which can be within days or weeks.
4. Lender Requirements: The lender will typically require the following:
   • Proof that the purchase was made with cash (e.g., bank statements, wire transfer records).
   • Proof that the purchase was an arm's length transaction, meaning it was not between family members or other closely related parties.
   • A new appraisal to confirm the property’s value.
   • The original Closing Disclosure.
5. Refinance and Reimbursement: Once approved, the buyer receives a mortgage for a significant portion of the property’s value (usually up to 75-80%), allowing them to recover their initial cash investment.

Benefits of Delayed Financing

• Stronger Offers: Cash offers are generally more attractive to sellers because they can close quickly and have fewer contingencies, increasing the likelihood of winning a bid in a competitive market.
• Liquidity Management: Buyers can recover their cash investment quickly, allowing them to use it for other purposes, such as additional investments or maintaining financial flexibility.
• Potentially Lower Costs: By purchasing with cash first, buyers might avoid some costs and delays associated with traditional mortgage approval processes during the purchase phase.
• Investment Opportunities: Investors can leverage their cash to secure properties quickly and then refinance to continue investing in other opportunities without being cash-strapped.

Considerations

• Qualification: Buyers must still meet the lender’s requirements for refinancing, including credit score, debt-to-income ratio, and property appraisal.
• Costs: There are costs associated with refinancing, such as appraisal fees, closing costs, and potentially higher interest rates compared to a purchase mortgage.
• Timing: Buyers need to act quickly to ensure the refinance is completed soon after the purchase to maximize liquidity benefits.

For more information about delayed financing please reach out to one of our experienced mortgage advisors. 

Park Place Financial Group

Joe Costa

Marni Wolf

402 West Broadway

Suite 400

San Diego, CA 92101

619-990-7552

info@parkplacefg.com

www.parkplacefg.com