Delayed financing is a strategy in which an investor purchases a property all cash and then quickly takes out a loan on the property to get their cash back. Generally, the lender will lend up to 75 percent LTV and rates start at five percent. Delayed financing allows you to compete with all-cash buyers and negotiate more favorable sales terms.
When you’re looking for a delayed financing mortgage, go to Visio Lending. They’re a reputable nationwide online lender that offers financing for real estate investors. They offer competitive rates starting at 7.5 percent and lend up to 75 percent LTV. You can get pre-approved online in just a few minutes.
How Delayed Financing Works
Delayed financing is a mortgage that is taken out on a property after you already own it, in comparison to a typical mortgage that is used for the acquisition of a property. The delayed financing mortgage allows investors to compete with all-cash buyers when purchasing the property while still keeping liquidity because the money isn’t tied up in the house after the delayed financing is completed.
Delayed financing isn’t a well-known type of financing. Delayed financing lenders offer loans for investors who initially purchased a property with cash. Typically, you will get up to 75 percent LTV for delayed financing. This means that if your property is currently valued at $100,000, then you can get a loan for up to $75,000.
Keep in mind that the value of the property is not the same as the purchase price. You may have underpaid for a distressed home or overpaid for a property in a desirable market. However, your new loan can’t be more than what you paid for the property plus your closing costs and lender fees.
Basically, you purchase an investment property using all cash and then you want to get your cash back to buy another property. You then use delayed financing to recoup your cash and take a loan out on the property. You also use it to compete with all-cash buyers and negotiate better terms. Delayed financing can be done as quickly as three weeks after purchasing the property, which is different from a cash-out refinance, where you have to wait six or more months before completing.
Fannie Mae & Freddie Mac Delayed Financing
Fannie Mae and Freddie Mac are both government-sponsored enterprises that provide secondary mortgage markets where loan originators can sell their mortgages. Delayed financing loans are typically covered by Fannie Mae or Freddie Mac.
Fannie Mae used to require that you own a property for six-plus months before completing a cash-out refinance, but they have an exception called the Delayed Financing Rule. This allows you to take out a loan on a property that you have owned for less than six months as long as you didn’t use any type of financing to initially purchase the property. This is different from a cash-out refinance, where you typically have to wait six-plus months to take cash out of the property.
Keep in mind that a cash-out refinance can do two things: pull equity out of the property and refinance the existing lien. A cash-out refinance is a different financing strategy than delayed financing. This is in contrast to delayed financing, which is reserved for all-cash purchases.
Delayed Financing Maximum Loan Amount
The amount an investor can borrow using delayed financing is usually based on the LTV of the property. It doesn’t matter what the purchase price of the property is—instead, the LTV is based on the property’s current value.
For example, if the property appraises for $100,000, you can get delayed financing for up to $75,000. Keep in mind that the new loan must be less than you paid for the property, including closing costs and lender fees.
- LTV: Generally up to 75 percent for an investment property with one unit
- LTV: Generally up to 65 percent for an investment property with two to four units
Delayed financing usually isn’t offered on buildings with more than four units. If you need financing on a building with five-plus units, then check out our in-depth guide on apartment building financing.
Who Delayed Financing Is Right For
The primary reason that investors use delayed financing is to be able to stay liquid. Investors use delayed financing to get the cash to be able to purchase another property.
Delayed financing is generally right for:
- Investors who want to compete with all-cash buyers’ short timelines
- Investors who want to have more bargaining power because they’re paying with cash
- A property that has multiple offers and the seller doesn’t want to wait on financing
- Investment properties, vacation homes, and primary residences
- An investor who wants to take their cash out and buy another investment property
Generally, delayed financing is right for an investor who wants to take advantage of all of the benefits of purchasing a home using all cash. They can often negotiate a lower price, close faster and compete with multiple other buyers. An investor who doesn’t immediately qualify for conventional financing may also opt for delayed financing.
Delayed Financing Rates, Terms & Qualifications
Delayed financing rates, terms, and qualifications vary by lender and are also based on the borrower’s qualifications.
However, you can typically expect to find the following delayed financing rates, terms and qualifications:
|Delayed Financing Mortgage Rates||5% - 9%|
|Delayed Financing Mortgage Terms||1 - 30 years|
|Delayed Financing Mortgage Qualifications||Credit score 650+, appraisal, two years of tax returns & arm’s length transaction|
Delayed Financing Rates & Costs
Delayed financing lenders offer a variety of rates depending on the type of loan and the borrower’s qualifications. Each lender has their own fees (such as loan origination fees, which are usually called points and are a percentage of the loan). The closing costs vary depending on the lender, the state and the price of the home.
Delayed financing lenders generally offer the following rates and costs:
- Rates: 5% – 9%
- Fees: 1% – 3%
- Closing Costs: 2% – 5%
Delayed Financing Loan Term
The delayed financing term depends on the type of loan you take out. If you choose a Fannie Mae loan, the term will be longer (up to 30 years), but if you choose to take out a hard money loan, your term may be as short as one year. Keep in mind that most short-term lenders will require you to have an exit strategy, such as selling or refinancing the property or using another property as collateral.
- Term: 1 – 30 years
- Approval Time: 21 – 45 days
Delayed Financing Qualifications
There are different types of delayed financing lenders, such as hard money lenders and conforming lenders, so they have different sets of qualifications. However, there are certain qualifications that need to be met by all lenders, including that the property must have been originally purchased using all cash.
Delayed financing lenders generally have the following qualifications:
- Arm’s Length Transaction: You can’t be related to or have a personal relationship with the seller
- Closing Documents: Closing statement from the property purchase
- Proof of Funds: Showing where you got the funds to purchase the property
- Bank Statements: Three-plus months
- Credit Score: 650+ (check your credit score free here)
- Tax Returns: Last two years
- Application: Loan application and may include a fee of $100 to $300
- Appraisal: Ordered by the lender and paid for by you, generally $500-plus
Although you may have just gotten an appraisal when you originally purchased the property, the lender will want to conduct their own appraisal before they give you a loan. Delayed financing lenders will have similar qualifications to those you would expect to see if you were applying for a loan to purchase the property.
Delayed Financing Lenders
You can find delayed financing at an online lender or with a bank or credit union. It isn’t that common because some lenders want you to wait six months before taking out a loan on a property. However, lenders do still offer it. It isn’t generally advertised, and you will need to ask for it.
Typically, you should look for a reputable lender that lends in your area, has qualifications that you meet and offers competitive rates. You will typically need to contact the lender and tell them about your qualifications and property, and then they will make a decision if they will offer delayed financing.
Here are three top delayed financing lenders:
Visio Lending: A nationwide, reputable online lender that specializes in loans for real estate investors. They typically lend up to 75 percent and can close a loan within 21 business days. They offer several different loan products, including investment property loans and bridge loans.
PNC: A well-known financial institution with branches in 19 states that offers banking services and loans. They offer up to 84 percent LTV, depending on the property’s location and the borrower qualifications. They have several delayed financing options, including a Home Equity Rapid Refinance Program that saves on closing costs. They offer discounts for account holders, and you need to contact them to find out how long you have to own the property to qualify.
Patch of Land: Another nationwide, reputable lender that looks at each individual deal before making a lending decision. They generally lend up to 75 percent LTV and offer refinances, bridge loans and investment property loans. They can close a loan within seven days, and their online pre-qualification takes five minutes.
If you’re ready to get some cash out of your investment property, contact Visio Lending. They can get you pre-qualified online in a few minutes. They offer competitive rates and tailor their loans towards real estate investors.
How to Apply for Delayed Financing
You can apply for delayed financing with delayed financing lenders such as online lenders or with a bank or credit union that offers it. The application process is very similar to the application process for a cash-out refinance, except that you don’t already have a lender you’re working with on the property so you will need to provide more documentation.
To apply for delayed financing, you generally need to follow these five steps:
1. Determine the Delayed Financing Mortgage Amount
Generally, you can get a loan up to 75 percent of the property value on an investment property. Keep in mind that the amount that you purchased the property for is not the same as the property value. A licensed appraiser will be able to tell you the current market value of your property.
2. Choose a Mortgage Lender
Find a few lenders that offer delayed financing and then compare them based on their rates, terms and qualifications. Also, check to see which lenders lend in your area. Ask if your bank offers delayed financing mortgages, because you’re likely to get a better rate due to your banking relationship.
3. Apply for Pre-qualification
After you choose a lender, you will answer some basic questions about your finances and the property. The lender will give you an estimate of the loan amount they will issue based on your answers to typical income, credit and property questions.
4. Finalize Pre-Approval
The lender will conduct an appraisal and ask for more information, such as two years’ of tax returns, and run your credit. The information in this stage helps lenders determine the specific loan term, rates, and costs offered for the delayed financing.
5. Receive Funding
This is the last step in the delayed financing application process. It occurs at something called a settlement, usually held at a title company’s office. Your new loan is funded by the lender and can occur as quickly as three weeks from the loan application.
If you don’t qualify for delayed financing or want to get a larger loan, you may need to wait six-plus months and apply for a cash-out refinance. Check out our in-depth guide on a cash-out refinance, including rates, terms, and qualifications.
Pros & Cons of Delayed Financing
Pros of delayed financing include:
- Bargaining Power: You can negotiate more on the purchase of a property because you have cash
- Recover Your Cash: Get your cash back immediately, which gives you more liquidity
- Purchase More Properties: You have cash to use as down payments for other properties
Some of the benefits of using delayed financing include being able to buy more houses on a shorter timeline than if you were purchasing with another type of financing, such as a conventional loan. Being able to purchase more homes means you have the potential to make more money in a shorter time period.
“Delayed financing allows you to pay cash for a home and then get your investment back without having to wait six months, which is standard for most mortgages. In a hot sellers’ market like we are currently in, all-cash offers give you a leg up on the competition when bidding on properties. Delayed financing gives the option to recover that investment after a property is bought. This could be a huge buying advantage if you have the cash to buy.”
– Ralph DiBugnara, President, Home Qualified
Cons of delayed financing include:
- Upfront Cash: You need to have the cash available to initially purchase the property
- Finding a Lender: Not all lenders offer a delayed financing mortgage, so you need to find a lender that does
- Fewer Tax Benefits: In order to have qualifying mortgage interest be tax deductible, the mortgage usually has to be considered acquisition debt; this means investors relying on delayed financing need to complete their funding within 90 days of the purchase or risk losing the tax benefit
For more real estate-related tax deductions and benefits, check out our in-depth 2018 guide on rental property tax deductions.
Frequently Asked Questions (FAQs) on Delayed Financing
What Is FNMA or Fannie Mae Delayed Financing?
FNMA stands for The Federal National Mortgage Association, which is a government-sponsored enterprise that provides a secondary mortgage market. They purchase mortgages from lenders who originate them. FNMA’s nickname is Fannie Mae, so FNMA delayed financing is the same as Fannie Mae delayed financing.
What Is Freddie Mac Delayed Financing?
Freddie Mac is the nickname for The Federal Home Loan Mortgage Corporation. It is a government-sponsored enterprise that was created to expand the secondary mortgage market.
How Much Does It Cost to Refinance Your Property?
When you purchase a property with cash and then get a delayed finance mortgage or a refinance, there are typically closing costs, including lender fees. These costs usually vary from two percent to five percent of the loan amount.
Delayed financing is when an investor purchases a property using all cash upfront and then quickly takes out a loan on the property to pay themselves back. Delayed financing can help the buyer take advantage of all of the benefits of buying a property with all cash (like bargaining power) while still freeing up their cash quickly after the purchase. Delayed financing lenders offer rates from five percent.
Visio Lending has delayed financing options for real estate investors nationwide. They’re a reputable online lender that offers competitive rates starting at 7.5 percent. They generally lend up to 75 percent LTV and you can get pre-qualified online in just a few minutes.