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How a Delayed Mortgage Works

How a Delayed Mortgage Works

    • Pros Cons
      • Take cash out of a property you bough for cash immediately instead of waiting six to twelve months
      • Access the equity in a property sooner than you can with a standard cash-out refinance
      • Program applies to both primary residences and investment properties
      • Beneficial to buyers in competitive real estate markets as well as fix & flip property investors 
      • Tougher qualification requirements including significant documentation from borrowers
      • Higher mortgage rate and fees than a standard cash-out refinance
      • Lower loan-to-value (LTV) ratio limit as compared to a standard cash-out refinance means you can access less equity in the property
      • Some restrictions on use of proceeds including no repayment of gifts used to buy the property
      • Fewer lenders offer program
      • Loan limits
    • What is a delayed mortgage?
    • A delayed mortgage enables you to immediately do a cash-out refinance on a property you purchased for cash. Borrowers are usually required to wait six months from the date a property purchase closes before they are permitted to do a standard cash-out refinance. Additionally, if you perform significant renovations on the property such as a "fix & flip", lender guidelines usually require you to wait one year before the post-renovation value of the property can be used for the purpose of refinancing, which allows you to qualify for a larger loan amount. A delayed mortgage enables you to access the equity in your home sooner than a standard cash-out refinance program.

    • What are the benefits of buying a home for cash?
    • A delayed mortgage enables you to purchase a property with cash and then access the equity in the property soon after you bought it so the initial question is why buy a home for cash? People buy homes for cash for many reasons, including:

      • removes financing contingency when buying a home which can be a competitive advantage in a hot real estate market
      • accelerates the home buying process
      • may be preferred by the property seller
      • no closing costs or fees associated with mortgage
      • you may not be able to qualify for a mortgage at the time you buy the home but you should be able to qualify in the future
      • may not be able to arrange financing if the property is in poor condition such as a fixer upper
      • fix & flip investor
      • may be easier to purchase real estate owned (REO) properties through a foreclosure or a short sale by paying cash
    • What are the reasons to get a delayed mortgage?
    • Now that you understand why people buy properties for cash, the question becomes why do a delayed mortgage instead of waiting six months to do standard cash-out refinance? There are also many reasons to choose a delayed mortgage, including:

      • you do not want to wait six months or potentially longer to access the equity in your property
      • you think mortgage rates are going to increase and you do not want to wait six months to refinance
      • your credit or financial profile changed and you are now able to qualify for a mortgage
      • you have new bills or debt that you want to pay down or pay off
      • want to use the equity in an investment property to buy other properties
      • potential tax benefits from mortgage
    • What are the requirements for a delayed mortgage?
    • The credit score, debt-to-income ratio and other borrower qualification guidelines for a delayed mortgage are similar to the guidelines for a standard cash-out refinance but the delayed mortgage program imposes an additional set of qualification requirements, most of which are related to the initial property purchase.

      The borrower is required to provide the closing documentation, including the settlement statement and grant deed, from the property purchase to confirm that the property was bought for cash and not financed with any loans against the property. The title report requested by the lender when you apply for a delayed mortgage must also show no debts or liens against the property.

      The borrower is also required to provide documents such as bank or brokerage account statements, pay stubs, tax returns and gift letters that verify of the source of funds used to buy the property for cash. If you used a personal loan or home equity loan or home equity line of credit (HELOC) on a another property to purchase the home then you are also required to provide documents for those loans.

      The property purchase is required to be an arms-length transaction which means the sale was negotiated in good faith between two unrelated parties. For example, if you purchased the property from a relative, friend or professional colleague then you are ineligible for a delayed mortgage.

    • How much money can you take out of your home with a delayed mortgage?
    • For a primary residence, you are usually allowed to take-out up to 70% of your property’s value for a maximum loan-to-value (LTV) ratio of 70% as compared to a maximum LTV ratio of 80% for a standard cash-out refinance. This means that borrowers are able to take less cash out of their homes with a delayed mortgage as compared to a standard cash-out refinance. For a second home or investment property the maximum LTV ratio for a delayed mortgage is typically 60%.

      Additionally, the mortgage amount plus closing costs and applicable fees cannot exceed the price you paid for the property. For example, if you purchased a property for $150,000, your delayed mortgage loan amount plus closing costs and fees cannot exceed $150,000, subject to a maximum LTV ratio of 70% for a primary residence.

    • Are there restrictions on how you use the proceeds from a delayed mortgage?
    • If you used a personal loan or home equity loan or HELOC on another property to purchase the home then the proceeds from the delayed mortgage must be used to pay off or pay down those loans. Additionally, the proceeds from a delayed mortgage cannot be used to repay a gift that was used to purchase the property for cash. These are the only two restrictions on how you use the proceeds from a delayed mortgage.

    • Are there limits to the size of loan you can obtain with a delayed mortgage?
    • The delayed mortgage program is subject to conforming loan limits, which vary by county and the number of units in a property. The conforming loan limit in the contiguous United States for a single unit property ranges from $453,100 to $679,650 in higher cost counties. In Hawaii and Alaska the conforming loan limit ranges from $679,650 to $1,019,475 for a single unit property.

    • What types of properties are eligible for a delayed mortgage?
    • One-to-four unit owner-occupied properties, second homes and investment properties are eligible for a delayed mortgage.

    • What type of loan programs are eligible for a delayed mortgage?
    • Conventional loans are eligible for a delayed mortgage while the FHA, VA and USDA mortgage programs do not permit delayed mortgages.

    • What are the negatives to a delayed mortgage?
    • A delayed mortgage imposes additional qualification requirements on borrowers including documentation requirements that are not associated with a standard cash-out refinance. Additionally, the delayed mortgage program typically charges a higher mortgage rate and fees than a standard cash-out refinance. This is because of the specialized nature of the program and because fewer lenders offer delayed mortgages. Fewer lenders offering the program means less competition which means higher interest rates and fees for borrowers. Borrowers should weigh the benefits of doing a delayed financing to access the equity in their home sooner against the cost savings they could realize by waiting longer and doing a standard cash-out refinance.

    • What lenders offer delayed mortgages?
    • Delayed mortgages are offered by traditional lenders such as banks, mortgage banks, mortgage brokers and credit unions although not all lenders offer delayed mortgages and they are relatively uncommon. Mortgage banks and mortgage brokers are more likely to offer delayed mortgages than big banks or credit unions. Because fewer lenders offer delayed mortgages there is more variation in mortgage rates and closing costs across lenders. Like with all mortgage programs, borrowers should compare proposals from at least four lenders to find the delayed mortgage with the best terms.

    • Rate Details*
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      Points  More Info:
      Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
       
      Total Lender Fees:  
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      Monthly Housing Payments
      P & I More Info
      Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
      Mortgage Insurance More Info
      Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
      (Estimated)
      Property Tax More Info
      Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
      (Estimated)
      Homeowner Insurance More Info
      Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
      (Estimated)
      Homeowner Association Fee More Info
      Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
      (If Any)
      Total Monthly Housing Payments
      Lender Fees
      Points More Info
      Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
      Origination Fee More Info
      Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
      Credit Report Fee More Info
      Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
      Tax Service Fee More Info
      Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
      Processing Fee More Info
      Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
      Underwriting Fee More Info
      Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
      Wire Transfer Fee More Info
      Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
      (If Any)
      FHA Upfront Premium More Info
      FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
      (If any)
      VA funding Fee (If any)
      Flood Fee
      Other Fees More Info

      Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

      The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

      Total Lender Fees
      *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
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      Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
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