In today’s market, there’s a lot of competition for homes (I don’t have to tell you that). In a tight bidding war, it is not uncommon, as one of the strategies, to offer all cash. I only advise that if you do that, you have the cash, or access to cash, available to close. You may think, “Hey, but if I give them all my dough, I’ll be left with nothing,” and I say to you that there is a solution to that, and it’s called delayed financing for a cash purchase.

Delayed financing describes a situation in which a person buys a home, paying cash up front, but, within the following six months, obtains a cash-out refinance on that same property. These loans can be put into process up to one month prior to meeting the full six-month seasoning requirement; however, they cannot be closed prior to the full six months seasoning.

The following occupancy types are eligible to borrow up to the percentages below with the amounts capped at lender loan limits (Based on area, Conforming vs. Jumbo and Fannie/Freddie vs. Super Jumbo):

Primary home. Max cash out on a one-unit single family: 80%, two to four units: 75%. (A non-occupied home is eligible as a primary residence if the client will occupy prior to close. A final inspection must be obtained to confirm that the client has occupied.)

Second home. Max cash out: 75%

Investment property. Max cash out: 75% on one unit and 70% on two to four units.

Any property purchased for cash six months preceding the disbursement date of the new mortgage loan is eligible for a cash-out refinance if all the following delayed-financing conditions are met:

• The original purchase transaction was an arms-length transaction (call me for the definition of that).
• The CD (closing disclosure, Hud-1s are not used anymore) from the original purchase transaction verifies that no financing was used to obtain the subject property.
• The preliminary title commitment must confirm that there are no existing liens on the subject property.
• The sources of funds to purchase the subject property are fully documented, including the down payment.
• If the source of funds to purchase the subject property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property) the CD for the refinance transaction must reflect that all cash out proceeds be used to pay off or pay down, as applicable, the loan used to purchase the property. Any payments on the balance remaining from the original loan must be included in the DTI (debt to income) ratio for the refinance to qualify.
• Gift funds used to purchase the property may not be reimbursed with the proceeds of the new mortgage.
• 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. The loan amount is subject to the max lender LTV (loan to value) ratios (loan amount /current appraised value) for the cash-out transaction.
• The borrower must be an individual (typically, but there are lenders that will allow other entities). Fannie and Freddie will allow you to borrow under a delayed refinance program even if you initially purchased the property as either an eligible inter vivos revocable trust, or an LLC or partnership in which the borrower has an individual or joint ownership of 100%, but ownership must be transferred from the business entity to the name of the borrower(s) prior to closing on the mortgage. (If a business, the business entity can be removed from the deed and executed on the same day but must be signed and recorded prior to closing. The mortgage must be signed as a natural person (a regular guy/girl or whatever the terms are today.)

I wish you luck on your house hunt, and, when faced with a bidding war, to remember the sacred words—all cash!

Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp., a Zillow 5 star lender (http://www.zillow.com/profile/Greenback-Capital/Reviews/?my=y). He is a residential and reverse mortgage financing expert and a deal maker with over 26 years of industry experience. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! Visit him at www.greenbackcapital.com or [email protected].