Cash-paying homebuyers represent a growing part of housing market, accounting for 29 percent of all home sales in June, according to the National Association of Realtors. And now, because of a favorable Fannie Mae rule change, today's cash buyers can purchase homes without sacrificing so much liquidity.
New mortgage guidelines erase the standard six-month waiting period to take "cash out" of a home.
You can now get cash just one day after closing.
"Delayed Financing" is a standard refinance
Appropriately dubbed "Delayed Financing," Fannie Mae's new program gives cash buyers access to home equity immediately post-closing, via a standard refinance.
Delayed Financing can be applied to homes of all types, including those purchased at auction, via resale or brand new. Furthermore, it can be used by buyers of all types--not just investors.
Trouble refinancing? Bring cash to the table
However, just because you pay cash for a home doesn't mean you'll be instantly eligible for Delayed Financing.
At its core, the Delayed Financing program is a mortgage refinance, so you'll still be required to meet minimum lending standards. This means having verifiable income, good credit and a history of making on-time payments.
There are restrictions
It's important to note that there are restrictions specific to the Delayed Financing program, including:
1. The cash used to purchase the home must be documented and verified
2. The original settlement statement must show no mortgage financing
3. A title search must confirm no liens on the property
4. The new loan may not exceed the original purchase price
Furthermore, the home must have been purchased in an "arms-length transaction"; the buyer and seller may not be related by family in some way, or be business partners.
Note: Buyers with more than four properties financed are eligible for the Delayed Financing program. Fannie Mae only requires that you have 10 or fewer homes with mortgages attached.
How much cash can you extract?
Homebuyers using the Delayed Financing program are subject to cash-out limits. Like a "normal" refinance, you can't take out all the cash you've put in.
Low-cash-out refinance: Keeping cash for later
In general, "cash out" is limited to 70 percent of the home's value.
For example, if you purchase a home with $150,000 cash and want to refinance your equity post-closing, the most you can cash out is $105,000. The remaining cash must remain as equity.
For home buyers with more than four properties financed, the LTV restrictions are tighter, maxing out at 65 percent. In the above example, the available cash out would be $97,500.
The good news is that rates for Delayed Financing are the same as for a "regular" refinance. There are no extra points to be paid or fees to be added. The standard Fannie Mae loan-level pricing adjustments apply.
Paying cash? Plan in advance
Some buyers pay cash because they want to. Some pay cash because they have to. Either way, that cash won't be tied up forever.
If you know you'll be using the Delayed Financing program, take steps throughout your purchase process to simplify your eventual refinance.
Coordinate with your loan officer in advance. You'll get your cash back quicker.
Dan Green is a loan officer with Waterstone Mortgage in Cincinnati, Ohio, and the author of the nationally recognized mortgage blog, TheMortgageReports.com. Dan offers the Delayed Financing program and serves investors with more than 4 properties financed. Follow him on Twitter at @mortgagereports.
