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If You Buy Home for Cash How Long Before Can Refinance?

If you purchase a property for cash how long do you have to wait before you can do a cash-out refinance?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

If you buy a home for cash, you are required to wait six months from the date the property purchase closes before you can apply for a standard cash out refinance. 

Additionally, if you perform significant upgrades or renovations to the property, lender guidelines usually require you to wait one year before the post-renovation property value can be used to determine the mortgage amount you are eligible for.  Using the presumably higher post-renovation property value to calculate the loan-to-value (LTV) ratio usually enables you to qualify for a higher mortgage amount so this is an important consideration.

To summarize, you may be required to wait six or twelve months after you buy a home for cash before you can refinance and take cash out of the property.  The timing depends on if you made improvements to the property and what property value you want lenders to use when you apply for the mortgage.

The table below shows refinance terms for leading lenders in your area.  Please note that mortgage rates for a cash out refinance tend to be higher than for a standard refinance when you receive no proceeds from the loan.  We recommend that you shop multiple lenders to find the best mortgage terms.

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Current Refinance Mortgage Rates as of November 14, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

One option if you want to access the equity in your property sooner is a delayed mortgage, which enables you to do a cash out refinance within six months of buying a property.  As we outline below, the qualification requirements and loan terms for a delayed mortgage are different than for a standard cash out refinance.

To be eligible for a delayed mortgage you are required to have purchased the property for cash.  Additionally, you must document the source of the funds that you used to buy the home by providing bank or investment account statements or other relevant documents.

Review How a Delayed Mortgage Works

The maximum loan amount for a delayed mortgage equals the amount you paid for the property plus any closing costs or fees.  On a positive note, the LTV ratio is calculated based on the post-renovation property value which may increase the mortgage you are eligible for. 

The maximum LTV ratio for a delayed mortgage on a single unit primary residence is 80% while the maximum LTV ratio for an investment property is 70% to 75%, depending on the number of units in the property.

Additionally, if you used a home equity loan or  HELOC on another property or a personal loan to buy the home for cash, you are required to pay off those loans before you receive any proceeds from the delayed mortgage.  Also, if you received a gift that helped you purchase the home for cash, you cannot repay the gift with the delayed mortgage.

We should highlight that the mortgage rate and closing fees for a delayed mortgage are higher than for a standard cash out refinance.  If you are in a rush to tap the equity in your home, then paying the higher costs may make sense.  If you do not have an immediate need for the funds then you may be better off waiting at least six months and doing a standard cash-out refinance, which may be less expensive and easier to qualify for.

Sources

Cash Out Refinance Guidelines: https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html

Delayed Mortgage Guidelines: https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html#Delayed.20Financing.20Exception

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%
Current Mortgage Rates as of November 14, 2019
  • Lender
  • APR
  • Loan Type
  • Rate
  • Payment
  • Fees
  • Contact
View All Lenders

%

Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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