Delayed Financing Mortgage – A Quick Introduction

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delayed financing mortgage

Buying or investing in a house can always be a difficult task. Most house purchasers are interested in paying all-cash. The perks of paying everything upfront during the purchase are very high; in the scenario of bidding against other people while purchasing a house, an All-Cash payment can help you win the floor.

Similarly, while purchasing a house, the best deals are available for those purchasers who are ready to pay the whole amount in All-Cash. The most difficult part of this whole scenario is collecting the large amount for payment. Here, the role of delayed financing mortgage comes into play.

What is Delayed Financing Mortgage?

Put into simple words, delayed financing is a method used for purchasing a house in which cash is paid to the seller upfront. Then after a few days or weeks, the purchaser gets a cash-out refinance as mortgage on the purchased property. This way, a large sum of money which the purchaser had used for purchasing the property comes directly back to his pocket. Following this strategy, the purchaser gains all the benefits of buying the property through all-cash but at the same time can easily return the loans step by step.

Related: A must-follow mortgage loan processor checklist

Benefits of Delayed Financing Mortgage

It may seem like a redundant thing to do: first pay all-cash up front and then get a mortgage later on. But unlike how it seems, there are many advantages of getting a delayed financing mortgage.

1)     All-Cash Payment Benefits

A buyer willing to pay in all-cash will be preferred by the seller as compared to any other payment method being utilized. Moreover, the sellers offer best deals to those who are willing to pay in cash. An all-cash payer can stand out amongst competitors.

2)     Alternative to FHA 203(k) Mortgage

When you take the FHA 203(k) Mortgage, the cost of repairing, buying, and building a home can be taken as a single mortgage only. Along with this, an up-front mortgage insurance fee is charged as well as the monthly mortgage premium fee has to be paid as well. But on the other hand, by getting a delayed financing mortgage this insurance fee can be avoided completely. This can be accomplished by maintaining an equity of 20% in the property.

3)     Use as Bridge Loan

In some cases, there are people who want to purchase a new house while selling their existing house whose loan they are still paying off.  In such a scenario, it would be best to use delayed financing mortgage. This can be used to further finance the new house in all-cash while at the same time pay the previous existing loan. Once the previous loans are paid off, the delayed financing mortgage can be reversed into a loan and paid off easily.

4)     Compete Wealthy Investors

As per National Association of Realtors, one quarter of all existing home sales were done through the all-cash payment method. Wealthy property investors have made multiple purchases throughout the last few years in all-cash. By taking the delayed financing mortgage, a buyer can stand right next to those investors and compete for the property on equal terms.

5)     Buy Inhabitable Houses

There are some which would not pass the home inspection for many reasons. For example, the tap water might not be running, the sanitation system can be corrupt, or many other problems can exist in a home. Such homes can never but it can still become habitable eventually through repairing. First, the house can be bought and repaired through their own means. Once it is all done, a delayed financing mortgage can be applied for. This way, the financial burden can be reduced and the loan can be paid off eventually.

Applying for Delayed Financing Mortgage

The cash-out refinancing process can be started immediately. There are a few eligibility criteria that need to be met in order to apply for the loan.

  • The amount of cash which was utilized in the purchasing of the house.
  • The amount of loan which can be taken from delayed financing mortgage cannot exceed the original cost of the house.
  • It must be proved that the house is sold so that no fraudulent activities can take place on its behalf.
    • In order to prove that the house has been sold it is important to provide the original Closing Disclosure Document to the loan officer. This document must be signed by all the stakeholders.
  • It should be proved through title search that no lien exists on the home in question.
  • The property or house being purchased should not be bought from family members, close friends or even business partners.

Drawbacks of Delayed Finance Mortgage

The most obvious drawback in delayed finance mortgage is that bringing together a huge amount of cash all at once and presenting it to the seller can be a difficult task. There are no additional funds given to the applier. It only provides funds for the amount that needs to be recovered from the funds that had been given to the seller. This often ties the hands of the person who takes the delayed finance mortgage.

Who is Suitable for Delayed Finance Mortgage?

Just like every other loan policy, delayed finance mortgage is not suitable for every person who wants to take a loan. It is best for the following people to seek out this kind of loan:

  • People who have the financial capability and assets to buy a home but cannot afford to completely lose their assets all at once. This applies to people who are investing their retirement savings or investment money. They can easily restore their funds with the passage of time while initially spending their money.
  • Multi-million dollar homes are often purchased through this delay finance mortgage method as well.
  • At the same time, it is not limited to the above two mentioned categories. Instead, it can be used for primary homes, secondary homes and even other properties being purchased for investment purposes.

Conclusion

Delayed Financing Mortgage is an unusual method of taking a loan and acquiring a mortgage. This type of mortgage method is not trivial and will not be offered by every loan provider. This decision should not be taken by an individual on their own. Instead a loan officer must be consulted. Through their experience, they can guide an individual in picking the right type of mortgage for the organization. There are many other options available which need to be thoroughly explored in before picking this option. Even though delayed financing mortgage is a good option to utilize, but the availability of cash and equity available readily with an individual is a difficult task.

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