Delayed Financing Exception – Scary Words for a Simple Subject

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After I spent the money show me how I can get it back out! What does it mean and how does it affect you?

If you have bought a property for “cash” within the last 6 months and are now looking to refinance to recoup part or all of your cash used to purchase the property this is considered a “delayed financing exception” for Fannie Mae and Freddie Mac – the two conventional agencies. 

Normally, you would have to wait at least 6 months before you can do a cash-out refinance but under a specific set of criteria called “delayed financing” an exception can be made. 

So what are the set of conditions that must be met to do a cash-out refinance immediately after buying a property for cash?

  1. The original purchase transaction was an arm’s length transaction to a natural person, an eligible inter-vivos revocable trust when the borrower is both the individual establishing the trust and the beneficiary of the trust; an eligible land trust when the borrower is the beneficiary of the land trust; or an LLC or partnership in which the borrower(s) have an individual or joint ownership of 100%
  2. The original purchase transaction is documented by a settlement agreement (CD, HUD-1) which confirms that no mortgage financing was used to obtain the subject property.  A recorded trustee’s deed (or similar) confirming the amount paid by the grantee to the trustee may be substituted for a settlement statement, if no settlement statement was provided to the purchaser at the time of sale.  (IMPORTANT NOTE TO READER: A new title search must confirm that there are no existing liens on the subject property.) 
  3. If the source of the funds used to acquire the property was an unsecured or secured loan other than the subject property the refinance transaction must reflect that all cash-out proceeds be used to pay off or pay down the loan used to purchase the property.  Any remaining balance from that loan must be included in the debt-to-income ratio calculation for the refinance transaction.
  4. The new loan amount can not be more than the actual documented amount of the borrower’s initial investment in purchasing the property plus financing costs, prepaid fees and points on the new mortgage loan (subject to maximum LTV, CLTV and HCLTV ratios for cash-out transactions based upon the current appraised value). Refer to Selling Guide Announcement SEL-2019-02

If you are looking at this situation or a similar situation call us immediately to get the correct answers and financing you need! 

Joseph M. Savino is a 29-year mortgage expert with 17 years of direct underwriting experience. He is a previous owner of a two top rated correspondent mortgage companies. He is a degreed graduate of DePaul University in Chicago, IL. Currently working at American Financial Network, Inc as a Regional Manager and National Renovation Division Manager. Licensed in all states we are experts in FHA, VA, USDA, Conventional loans, Renovation loans, Reverse mortgages and Non-QM (Qualified Mortgages) including bank statement loans, asset-based loans, and stated income loans for self-employed borrowers as well as hard money loans.

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