Buying a house with cash often gives you the leg up on the competition. Who wouldn’t want to accept a cash offer versus one that requires a bank’s approval? What happens when you tie up all of your money in the home though, and you need it later? Can you get a mortgage?
Delayed Financing – How it Works
What you are looking for is delayed financing. In other words, you borrow money for the home after you’ve already bought it with cash. It’s a common phenomenon even though it seems to work the system a little backward.
You do the same thing you would do to purchase a home. You must complete an application and provide the lender with your qualifying factors including the proof that backs them up. This includes information on your income, assets, and debts. You’ll also need to get an appraisal on your home in order to prove that there is enough collateral for the bank.
How Soon can You Use Delayed Financing?
The good news is that there isn’t’ a waiting period for delayed financing. Normally, when you want to do a cash-out refinance, you have to wait until you’ve made at least six payments on the loan. Since you don’t have any financing on the property currently, though, you don’t have to wait. You can apply for delayed financing as soon as you want after buying the home.
Many buyers will use this knowledge to their advantage. They will buy the home with cash in order to get the best deal on the home. They know that it also helps them win the bid since sellers like cash buyers. After a few weeks or a month, the buyer then applies for delayed financing to get some of his cash back and to increase his liquidity.
The Best Use of Delayed Financing
Aside from the fact that sellers like cash buyers and are more willing to negotiate, buyers often use this tactic to get around the home appraisal issue. If they know that the property they want to buy is in a condition that a bank would not approve of, they can pay cash for the property and fix it up to a point that the bank would approve it.
Many buyers use this tactic when buying a foreclosure or short sale. Oftentimes these homes are in less than optimal condition. If the buyer knows a bank would never approve it, they pay cash for it, knowing that they can get their cash back with delayed financing.
Qualifying for Delayed Financing
Aside from having the right credit score and debt ratio, you’ll need to meet the following requirements in order to get delayed financing:
- You can’t borrow more than what you paid for the home
- You can’t buy the property from a family member or friend
- You must prove the source that you used to pay for the home to prove that they were your funds
- You need proof that you paid cash for the home, which you can prove with the Closing Statement
While delayed financing isn’t the most common program around today, it’s a program that many investors use when buying a short sale or foreclosure. If you think you might be interested, put your feelers out with different lenders to see what requirements they have before you tie your cash up in a home so that you know you can access it down the road.