Should You Write a “Love Letter” to a Home Seller?
Dan S | Apr 26, 2022
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By Olivia G on Dec 30, 2021
It’s no mystery that an all-cash offer on a house is a huge advantage. In a highly competitive seller's market, a cash offer on a property can be the difference between getting your dream home or not. And in a buyer's market, a cash offer gives you extra leverage to negotiate on price or seller concessions.
But most prospective homeowners aren't sitting on a giant stack of cash. Even if buyers do have the cash available, it may not be the best financial choice to tie it all up in a home purchase.
This is where delayed financing begins to look like an attractive option. Delayed financing is a term you’ve probably heard before. So, what is it? And who can do it? We’ll unpack everything for you.
Delayed financing is a way of buying a home with cash upfront and then, right after the purchase is complete, doing a cash-out refinance. In this case, you buy the house free and clear, and then take a loan out against the home afterwards in order to get back liquidity rather than keeping your cash tied up in your house.
Essentially, delayed financing is a delayed mortgage. Homebuyers and investors get the advantage of being a cash buyer, then get a mortgage shortly afterward to get cash back out of the property. This avoids tying up cash in a house that could be used more productively elsewhere.
Delayed financing exceptions and requirements
There are certain eligibility requirements for homebuyers to take into consideration before using delayed financing.
With traditional home equity financing, there is a requirement for the new homebuyers to be on the property title for at least six months. Delayed financing is an exception.
The delayed financing exception allows homebuyers who pay cash upfront to apply for cash-out refinancing immediately.
There are different delayed financing exceptions depending on Fannie Mae and Freddie Mac loans. And these can affect your cash-out refinancing. Researching these in advance and knowing your lender is important. When you choose a mortgage lender, ask questions about their loan processing time, documentation requirements, and their standards for a delayed financing cash-out refi loan.
Some of the other qualifications you have to meet for delayed financing include:
The purchase of the property has to be an arms-length transaction.
The buyer must use cash to buy the property.
The buyer must provide the source of the funds.
If the cash used to make the initial purchase came from a HELOC on a different home, the proceeds from the delayed finance mortgage must be used to pay off that HELOC.
The new loan amount cannot exceed the purchase price.
Lastly, for delayed mortgages, homes also have to stay within a local loan limit based on location.
For example, for single-family homes in most counties in Colorado, the loan cap was raised to $647,200 for 2022. But in Denver, the limit is $684,250 for a single-family home in 2022. Loans above these limits are considered "jumbo loans" and may not be eligible for delayed financing, depending on your lender.
To recap, a delayed financing strategy requires cash upfront and has lots of special requirements. So, why would buyers want to do it?
For older homebuyers looking to downsize and who have cash available, delayed financing could be a great option. Buyers who are downsizing typically have cash available from selling their more expensive house. Taking advantage of delayed financing means this homebuyer can act more quickly when buying their new, cheaper home with cash on-hand, because all-cash offers close faster and are more attractive to sellers. Then, this buyer can turn around and do a cash-out refinance immediately, under the delayed financing exception, to regain liquidity and take their time repaying the new loan.
Similarly, for property investors, delayed financing keeps assets more liquid to support their real estate investment strategy. These types of buyers are in a category all of their own, usually with large sums of money allocated for buying and then flipping or renting houses. These are not your average homebuyers.
That said, there are some advantages and drawbacks to consider when deciding if delayed financing is an option for you.
Pros of delayed financing
Gives buyers a competitive edge when buying a house with cash.
Allows buyers to bundle closing costs and financing costs into the cash-out refinance.
Helps buyers regain cash immediately instead of waiting 6+ months to refinance.
Delayed financing may be a smart and strategic financial move if you have the money available to buy a house outright. However, not all homebuyers are sitting on this much cash.
In order to take advantage of delayed financing, cash on-hand is a fundamental requirement. And one that disqualifies a lot of buyers.
Cons of delayed financing
Requires cash upfront to purchase a home.
Requires that all qualifications (listed above) are met. These can vary by lender.
Limits which lenders buyers can use depending on cash-out refinancing availability.
Has loan limits for refi that cannot be exceeded.
Requires leaving some equity in the home to avoid PMI.
Allows only certain types of conventional and some jumbo loans. FHA and VA loans are not eligible.
Comes with the risk of not closing the refi quickly or locking in the best rates, should rates rise by the time of the refi closing. .
Comes with higher interest rates than a traditional mortage.
If you are able to make an all-cash offer on a home but want to stay liquid, then a cash-out refinance with delayed financing could work. But there are calculated risks that come with this strategy that the average homebuyer is probably not willing to take.
Delayed financing isn't the right option for most homebuyers. Whether it's the risk, the higher loan rates, or the upfront cash requirements, this type of delayed mortgage strategy attracts a small subset of buyers.
Let’s say you’ve done your research and delayed financing just isn’t going to work for you.
There is another option available for making cash offers on homes!
At Accept.inc, we are the mortgage lender of choice for everyday Colorado homebuyers who want to make a cash offer on their next home. If you qualify for a mortgage, you can get Cash ApprovedTM. Once approved, you can make your next house offer backed by Accept.inc's proof of funds -- in other words, you're a cash buyer. But unlike with delayed financing, you'll already have the details of your Accept.inc loan, including your competitive mortgage rate, with no hidden fees. Once the closing process is completed, you begin paying back the loan just like a traditional mortgage.
Accept.inc levels the playing field for any qualified homebuyer to compete with other cash buyers. All without needing upfront funds or complicated financing tricks. Now that you know the pros and cons of delayed financing, we think you'll agree that the Accept.inc alternative is superior in every way.
Get Cash Approved today and start making cash offers without any uncertainty.
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