More than 25% of homebuyers pay cash for their homes. Previous rules stated that buying a house with cash meant that the borrower needed to wait at least six months to apply for a cash-out refinance. Even though the equity in the home is his, the “seasoning” was necessary to protect the lender. Today, however, Fannie Mae provides a loan called “Delayed Financing.” This program gives you access to the cash just one day after you close on your home and pay cash for it.
What is the Delayed Financing Program?
The Delayed Financing Program began in late 2011. It was created in order to perk up the housing industry. Specifically, it was meant to help those homes that would otherwise sit untouched because they would not pass an appraisal. Since every loan program requires an appraisal in order to secure a mortgage on it, the home must be in good condition or at least be able to pass the codes that govern the mortgage program you desire. If the home cannot pass the appraisal, the only option is to pay cash. While there are many borrowers that can afford to purchase these homes, especially foreclosed homes, they do not want to tie up their cash. This is where the Delayed Financing program comes into play.
Examples of Homes that Benefit from the Program
There are many different ways a home can be “unlendable.” For example, borrowers that want conventional financing need a home that has working utilities, is safe and sanitary. Examples of things that lenders can say “no” to lending to include:
- No running water
- No heat
- Lead paint
- Broken windows or doors
- Termite damage
Any of these issues can make a home inhabitable because it is either unsanitary or unsafe, neither of which any bank will want as collateral.
How to Get your Money Back after Buying a House with Cash
So how can you get your money back if you pay cash for a home that has no running water and has broken windows? First, you pay for the home and close on the purchase. You take ownership of the home and make the necessary changes to the home. You do not have to make the home “pretty,” it simply needs to pass specific safety and sanitation guidelines. Once the home is up to code, you can apply for Fannie Mae Delayed Financing.
The program is a cash-out refinance program but has different specifications than a standard cash-out refinance. Basically, what you need to prove to the bank is as follows:
- You must prove that the funds you used to purchase the home were yours (sourced in your own account or from a home equity loan from a separate property)
- You cannot apply for a mortgage amount that is higher than what you paid for the home
- The home must be free and clear of any liens
- You must prove full ownership of the home with the HUD-1 or Settlement Statement from the closing
- You must prove that you did not take out any other types of financing in connection with this property (you can have financing out on other properties, though)
As with any program, there is a maximum LTV for the Delayed Financing Program. For any type of property, whether a 1, 2 or 3-unit property, you cannot borrow more than 70 percent of the value of the home. This differs from the purchase price. You might have purchased the home at a discount because of its condition or because it was a foreclosure, but this is not necessarily the value of the home. An appraiser can conduct a valuation on the property to determine its worth. The lender will then maximize your loan amount at 70% of the value of the home.
The good news regarding the maximum LTV is that you are eligible to make back any money you put into the home. This includes:
- Money for repairs
- Money for cosmetic changes
- Closing costs
Basically, any money you put into the home whether to purchase it or fix it up can be reimbursed with the cash-out refinance as long as it the LTV does not exceed 70% of the current value of the home.
Buying a house with cash is a distinct possibility with the Fannie Mae Delayed Financing program. Even though the mortgage is technically a cash-out loan, it offers you many flexibilities that a standard cash-out refinance does not offer. The largest perk is the ability to secure the mortgage just days after you close on it, but in reality, most people take longer than that simply because they need to fix the home up in order for it to pass an appraisal.
As long as you have good credit, can prove how you purchased the home and do not have any other issues, such as bankruptcies, foreclosures or judgments, you should be eligible to receive this Fannie Mae program. It is a great way to reduce the number of vacant homes that sit on the market because of the inability of the properties to pass a standard appraisal.