Sometimes there’s an advantage to paying cash for a home even if you want a mortgage. This is especially true for real estate investors. Speed, price and terms of the deal may all be improved with a cash offer. But if you planned on pulling your cash back out of the property right away, you would have been turned away. Fannie Mae had a delayed financing rule in cases like this. They imposed a mandatory 6 month waiting period on cash-out refinances for cash purchased homes. That changed last year when Fannie Mae created an exception to that rule. Under the delayed financing exception investors or homeowners can pay cash for a home then refinance and withdraw their money the very next day.
Buy Low Sell High
For real estate investors this is a great rule. It allows them to turn their money over quickly. They can take advantage of market opportunities while they’re available. Beforehand, invested funds were held captive for 6 months. Those funds were not earning any return. When you factor in lost opportunity cost and inflation they were actually losing money for investors! Not anymore. Real estate investors want to leverage their capital. Low interest rates make money cheap. And as home prices begin to rise around the country, real estate investors want to buy now while prices are low. They’ll realize the maximum appreciation when they sell high.
Rules of the Game
Fannie Mae does have rules for the delayed financing exception. You can’t get every dollar back out with your cash-out refinance! But you can get up to 70%. That’s the maximum cash out allowed if the property was purchased within the previous 6 months. So here are the rest of the rules:
- The new loan amount can’t exceed your total INITIAL investment.
- The purchase transaction must have been an arms-length transaction.
- You must prove that no mortgage financing was used to purchase the home.
- The title report must show that there are no existing liens on the property.
- The source of the funds used for the purchase can be documented.
This Fannie Mae exception is right up a real estate investor’s alley. But this is for every homeowner who paid cash for their property, whether it’s a primary or secondary home. If there’s a time, price or term advantage to paying cash then do so. Now you can get your loan after the purchase. It’s a great time for every person to leverage their cash savings. Since the cost of borrowing is so cheap, it makes sense to put your savings to work for you to obtain higher rates of return. Since home equity has no financial rate of return, leveraging your equity to invest elsewhere is a practical move. In that respect, it makes all of us real estate investors!
This program is treated like all other cash-out refinance loans. The borrower must still meet the lending requirements and go through the underwriting process.
For more information on the delayed financing exception or any other cash-out refinance contact me. I also really enjoy real estate investing. It’s a passion of mine. I would love to hear from active AND aspiring real estate investors. We all grow together!