Delayed Financing presents some

interesting opportunities for cash buyers...

This is one of my favorite programs because it provides buyers with a wide range of financial choices. Its full name is FNMA's Delayed Financing Exception because it's an exception to the standard guidelines for conventional refinances.

One of the more popular uses is a 50%-60% cash out refi within 3 months of an all-cash purchase. Use this week's newsletter to help your buyers become more familiar with this relatively lesser-known program.

...and most don't even know it's available to them.

South Florida has more all-cash residential real estate transactions than most anywhere else that comes to mind.

In earlier newsletters we've discussed the relative benefits and limitations of either paying cash or using financing to buy property.

Today, I'm going a little deeper into the mortgage planning aspect and discussing how Delayed Financing can offer the benefits of both cash and financing. It seems almost custom-made for South Florida real estate markets.

Until just a few years ago, if a residential property was purchased with cash, the buyer had to wait a minimum of

6 months until a cash-out refinance could be used to release some of that money and let it be put to other use.

Now, instead of waiting 6 months before being able to do a traditional cash-out refinance, a Delayed Financing refi can take place within 6 months of the original cash purchase - and it works best when done within 3 months.

Delayed Financing helps cash buyers achieve greater :

Leverage - a basic principle of real estate investment; using

borrowed money to own property, increasing rate of return

and putting less of one's own cash at risk.

Liquidity - Money that would have been tied up in a

property is readily available for other use.

Diversification - another basic investment principle,

spreading exposure among different investments, reducing

overall risk.

Here are the rules :

- The 6 month time frame begins on the closing date of the

original cash transaction and ends on the funding date for

the DF refi. This means that full application, underwriting, and

final approval must have taken place within that time.

- The original purchase must have been an "arms-length"

transaction, meaning that the buyer and seller were not related

personally or in a business sense, and acted in their own

individual interests. The price paid can then be considered fair

market value.

- The settlement sheet from the original transaction must

show that NO financing whatsoever was used.

- Funds for the cash purchase must be fully documented,

sourced, and "paper trailed". If any of the purchase cash is

from a HELOC or other cash-out on a different property, that

indebtedness must be paid off first from the DF financing

proceeds.

- The loan amount must comply with allowable LTV ratios

for cash-out loan programs (usually 70% maximum). The new

loan amount can include its own closing costs and prepaid

fees, providing that the LTV limit is maintained.

- The interest rate must be comparable to other cash-out

refinances with similar LTVs and transaction specifics.

- A title search must show that there are no liens on the subject

property.

- The DF loan and title must be held in individual personal

names.

Providing that all requirements are met, Delayed Financing can be used for :

Primary Residences

Second Homes

Investment Properties

Why would cash buyers want to use Delayed Financing shortly after closing?

- Use cash as a negotiating tool with the seller and quicker

   closing, then take out some of it and reinvest for potentially

greater return and better diversification.



- Borrow from a qualified retirement account to close a cash

deal, then repay that account quickly to avoid excessive fees

   and penalties. See your CPA or advisor for requirements.



- Have the peace of mind that cash is in a more liquid

investment than real estate, which ties up money until the

property is sold.



- Be able to use the mortgage interest tax deduction for primary

and second homes when itemizing deductions.

Delayed Financing is part of an overall approach that I refer to as Strategic Financing, which is making sure that a loan program properly addresses the buyer's financial needs, goals, and future plans.

Putting together a deal using Delayed Financing requires a Mortgage Originator who understands your buyers' financial priorities, can communicate well with them, and get to the closing table within the allowable timeline.

Whether it's Delayed Financing or anything else your buyers

would like to know about real estate finance, have them call me when they first start looking at properties with you.

Well-informed buyers and sellers make our trip to the closing table so much smoother.

Let me reinforce the trust

your buyer has placed in you! sm