What is Delayed Financing When Buying a Home?

Published:
May 18, 2022
Last updated:
May 18, 2022
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Want the best of both worlds when buying a home? Delayed financing can let you buy a home for cash, but then get your cashback out of it just as quickly.

Buying a home in the current competitive market can be challenging. Cash offers stand out, but what if you don’t want to tie up all of your capital for an extended period of time? Delayed financing could be the answer to your property-buying woes.

What Is Delayed Financing?

Delayed financing means getting a mortgage after you buy a house, instead of before. It’s a lot like a cash-out refinance, except that you don’t have a loan to refinance, just the home – which you are mortgaging after the fact.

What this means

A delayed financing transaction means you have to have available cash from somewhere in order to make a cash offer on a home and close the sale. Then you can immediately turn around and cash your money back out by taking out a mortgage. Usually you’ll get up to 80% to 100% of the purchase price of the home (including all associated costs and fees) back in cash.

Delayed financing vs. cash-out refinancing

If you buy a home with a mortgage, you have to wait six months or more to take a cash-out refinance and tap into any available equity. With delayed refinancing, you gain an exception, and can instantly access equity in the home even if you just bought the house with cash a week before.

With so many home purchases being all cash deals in a seller’s market, delayed financing can let real estate investors buy a home, cash it out, and use the money again to buy a second home, make another purchase, or put the money in an investment account where it can earn more than the interest paid on a mortgage.

Who Might Want Delayed FInancing?

There are a lot of people who might be able to come up with cash to buy a home, but then want to be able to access that cash quickly.

Rehabbers or flippers

People who fix and flip houses or rehab them to live in themselves can buy a home with cash, get delayed financing to create a mortgage, and use the cash to do repairs and renovations. If a house is truly uninhabitable, lenders typically won’t approve a mortgage, so rehabbers are one of the biggest groups of delayed finance borrowers.

Real estate investors

Real estate investors who buy foreclosed properties at auction or are hoping for a short sale need to be able to close fast. An all cash deal can let them compete in these challenging home buying arenas, and still maintain liquidity that lets them continue to wheel and deal in the real estate market once a deal is done. It’s a great way to maximize holdings in real estate.

Who Can Get Delayed Financing?

Not all loan applicants will qualify for delayed financing. There are a lot of rules that apply, including:

  • Applicant must have paid for the property in cash, and be able to prove it
  • The new mortgage can’t exceed purchase price plus closing costs, points and fees
  • Applicant must provide proof of the source of the initial purchasing funds
  • Home cannot have been bought from a family member or friend
  • Property cannot have been purchased with money borrowed from someone else
  • Applicant must prove that any gift funds used for purchase are not being reimbursed
  • Property cannot have any liens against it

How Does Delayed Financing Work?

Delayed financing is easy. Once you buy your home with cash, simply apply for a delayed financing mortgage like you would a cash-out refinance.

As long as you meet all of the qualifications listed above and none of the exclusion apply either pertaining to the house, the funds used to make the purchase, or to you as the borrower, you can get cash out of the home immediately.

You can then use the cash by investing it, buying another home, performing any home repairs or renovations needed to make it habitable or saleable, and so on. You can have the home appraised again after any renovations to see if the value has increased, and refinance at that time.

If you plan to live in the home, make sure that 20% or more of the final value of the home is left out of the mortgage amount so you won’t have to pay private mortgage insurance (PMI.) 20% in cash reserves is also a good idea if you have to pay a premium in cash to sweeten the deal when making your purchase. This can help protect you if the home appraises for less than the purchase price.

In some cases, a home can be purchased with a line of credit taken out against stocks or other securities. This allows these assets to be leveraged as security without a tax penalty, since they aren’t being liquidated.

The bank simply funds a line of credit, the home can be purchased, and the line of credit can be paid back as soon as the delayed financing mortgage is complete. This can be a very attractive option for people who have good investment holdings and not a lot of liquidity.

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What Types of Loans Qualify for Delayed Financing?

As a rule of thumb, you can get delayed financing on home purchases that would qualify as a conventional or jumbo loan (view loan limits.). FHA loans, VA loans, or USDA loans have specific requirements and you won’t typically be able to qualify for that kind of loan for a delayed finance situation.

If you don’t think you will be able to get approved for a mortgage loan, think twice about putting all of your money into a property while counting on delayed financing. If you end up with your money tied up in a property you can’t afford to upkeep and pay property taxes on, you could lose all of your hard-earned cash.

Delayed financing can give you a great opportunity to make a competitive all-cash offer on a home. Then it can deliver all of the benefits of a conventional long-term mortgage. You’ll get the house you wanted while remaining liquid. It’s always smart to keep your options open.

Why Choose Sammamish Mortgage?

At Sammamish, we believe educating homeowners is the best path forward to financial success. That’s why we put so much effort into our blog articles, to help create a resource for homeowners and homebuyers.

Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.

Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.

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