Cash In? Cash Out Quickly

As homebuyers plunk down all cash to win houses, some of them might wonder how quickly they can convert that equity back into Benjamins. The answer? They can get a cash-out refinance almost immediately, thanks to a little-known Fannie Mae program (Freddie Mac offers an alternative as well). The delayed financing program allows all-cash homebuyers to refinance and take equity out as soon as they close on the home purchase. Before mid-2011, when the program went into effect, homebuyers had to wait at least six months before tapping home equity.

That’s good news for homebuyers in all-cash sales, many of which are investors but others are retiring baby boomers trading down to more manageable homes and pocketing the difference when they do it. The delayed financing program gives them the option to take home even more cash while enjoying historically low interest rates on a conventional home loan. Even though the wait time is waived, the program comes with rules such as the sale must have been “arm’s length” (no parents selling to children), the owner can’t have more than 10 financed properties and there can’t be any other liens against the property. Why would a homeowner use the delayed financing program instead of waiting the six months to tap equity?

• A property may be in such disrepair that a lender won’t underwrite it. With this program, a homebuyer can buy the property, make quick repairs and take money out of it before six months elapse.
• The chain of buyers and sellers might have irreconcilable timing issues.
• It can be used as a tactical advantage in a hot market. Many sellers would rather accept cash offers over those with a financing contingency, sometimes even when the cash offer is lower. The program allows homebuyers to present a cash offer, then replenish their liquidity once the deal is done.
• The program can act as a hedge against rising interest rates– if the buyer believes rates will increase in the six months after buying.

Source: Mortgage Daily

Note: If you or one of your clients have purchased a home for cash within the past six months, we can help new homeowners take advantage of this program.