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Pay Cash For House Now & Get Financing After Close; “Delayed Financing”

a family sits on a gray couch with their two children in a home that received many cash offers for the purchase and financing of their homeDespite the COVID crisis, there seems to be more cash-rich buyers than ever right now in our three biggest markets – Bay Area, Austin, TX, and Dallas, TX.

This is a result of several things, including the thriving tech economies of Austin and the Bay Area; the prevalence of cash-rich Californians taking their home equity to Texas; and the result of Fed/Stimulus dollars inflating asset values (which in turn puts cash in the pockets of wealthy buyers).

In any case, we are seeing a large number of cash offers – which, as everyone knows, are much more likely to be accepted than similar offers with financing.

As an interesting and related aside, a friend of mine with very strong financing was looking at a $2.2 million listing a few weeks ago but was told to not even make an offer b/c so many “all cash offers were coming in from Silicon Valley.” The home sold for over asking in under a week, illuminating the trend I blogged about last week.

DELAYED FINANCING

When buyers do pay cash for a property, they are usually not missing out on the opportunity to take advantage of financing a property at today’s very low rates.

This is b/c they can often take advantage of what is called “Delayed Financing.”

This is a provision offered by Fannie and Freddie (“conforming loans only”) that allows cash buyers to obtain financing immediately after close.

There are caveats though:

  1. Buyers can only take cash out equal to the cash they put in. Buyers must prove that the cash came from their accounts.
  2. Buyers cannot use delayed financing to pay back gift funds. This is an offshoot of the above item, but I am separating it to make it extra clear.
  3. Buyers are subject to cash out/Fannie/Freddie limitations. This means that the rate will be slightly higher in most cases; that loan-to-value ratios will be limited to 80% for primary residences; and that buyers are subject to Fannie/Freddie loan limits ($510,400 in Texas; $765,600 for the Bay Area).
  4. The delayed financing must close within 180 days of close of escrow.

OTHERWISE – WAIT SIX MONTHS

If buyers don’t meet the above criteria, they can still obtain financing after they close but they have to wait at least six months.

IF USING FUNDS FROM A RELATIVE, RECORD A DEED OF TRUST

We sometimes have buyers seek delayed financing after they use funds from a wealthy relative to buy a property.

But b/c those funds did not come from the buyer’s account, the buyer is ineligible for delayed financing.

If these buyers, however, have their relative record a deed of trust at close, they don’t need to do delayed financing at all.

They can simply refinance without any limitations, other than loan-to-value restrictions.

Many relatives don’t record deeds of trust b/c they trust the person they’re loaning money to and b/c they know the loan will be paid back soon (they just want to avoid the hassle).

But, relatives should always record a deed of trust for financing, tax and financial-security reasons.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167