Delayed mortgage financing is an investment option that allows real estate investors and buyers to use cash to purchase a property and obtain the financing for it at a later date.
This option is becoming increasingly popular among younger real estate investors, as it allows them to take advantage of the flexibility and potential cost savings of using cash while still being able to leverage the benefits of financing.
We believe that this investment strategy can provide a powerful framework for beginner real estate investors looking to make their first big purchase for their future.
In this article, you’ll learn the ins and outs of delayed mortgage financing. Make sure to keep reading if you want to learn:
- A great introduction to delayed financing, including a definition and explanation of how it works
- Discussion of the benefits of delayed financing, including the ability to negotiate a lower purchase price and avoid certain fees
- Learning the eligibility requirements, including the need to have the necessary funds available, and meet the lender’s requirements
- Examples of the types of properties that are eligible for delayed financing
What are the Benefits of Getting a Delayed Mortgage Financing Loan?
A delayed mortgage financing loan, also known as a cash-out refinance, allows a homebuyer to use cash to purchase a property and then obtain a mortgage to pay off the cash at a later date.
There are several potential benefits to this type of loan arrangement.
One of the key benefits of delayed financing is the use of cash power.
Cash power allows the investor to purchase a property with cash, the buyer is able to negotiate a lower purchase price and potentially avoid certain fees such as mortgage origination fees and closing costs.
Additionally, the use of cash can help the buyer secure the property faster, as there is no need to wait for financing to be approved.
Another benefit of a delayed mortgage financing loan is the ability to lower the purchase price of the investment property. By using cash to make the initial purchase, the homebuyer may be able to negotiate a lower price with the seller.
This can be especially useful in a competitive real estate market, where buyers may be competing with multiple offers.
A cash-out refinance can also help the homebuyer skip mortgage fees such as closing costs. Closing costs are the fees that are paid at the time of closing on a mortgage loan, and they can include fees for things like appraisals, credit reports, and legal services.
By using cash to make the initial purchase, the homebuyer can avoid these fees, which can save them a significant amount of money.
What are the Eligibility Requirements?
It’s really important to note here that not all buyers are eligible for delayed financing.
In order to qualify, the buyer must have the necessary funds available to purchase the property with cash and must meet the lender’s requirements for financing.
Our article on lender requirements takes a deeper look into what a buyer must provide to meet each lender's specific requirements to make the most profitable investment decision.
On top of this, the property must meet certain criteria, such as being a non-owner-occupied property or a single-family home.
Are There Any Disadvantages to Receiving a Delayed Mortgage Loan?
When referring to receiving a delayed mortgage loan, we’re talking about a situation in which the borrower is not able to secure mortgage financing on their desired timeline.
This can occur for a variety of reasons, such as difficulty in obtaining the necessary documentation, problems with the property itself, or a lack of available financing options.
While delayed mortgage financing can be frustrating, there are also a number of disadvantages that borrowers should be aware of.
One major disadvantage of delayed mortgage financing is the potential impact on the borrower’s credit score. If the borrower is unable to secure financing on their desired timeline, they may need to seek alternative forms of financing, such as personal loans or credit cards.
This can result in additional debt and may negatively impact the borrower’s credit score.
Another disadvantage is the potential for rising interest rates. If the borrower is unable to secure financing on their desired timeline and needs to wait for rates to improve, they may end up paying more in interest over the life of the loan.
This can significantly increase the overall cost of the mortgage and may make it more difficult for the borrower to afford their monthly payments.
In addition, delayed mortgage financing may also impact the borrower’s ability to purchase their desired property. If the borrower is unable to secure financing in a timely manner, they may need to look for alternative properties or may be forced to wait until financing becomes available.
This can be frustrating and may result in the borrower missing out on their desired property.
Finally, delayed mortgage financing can also be stressful for the borrower. It can be difficult to plan for the future and make important financial decisions which is why it’s critical to have a team of financial partners who can help you make the most profitable decisions.
Delayed Financing Property Examples
To start off, the property must be a primary residence, a second home, or an investment property. This means it can’t be a commercial property or land that is not developed yet.
Next, the property must have been purchased with cash or with a cash equivalent, such as a cashier’s check or wire transfer. The property cannot have been financed with a traditional mortgage at the time of purchase.
You may be thinking to yourself: Okay, but is this investment strategy available in my state?
Delayed financing is available in all states in the US. However, the requirements for the property may vary depending on the lender and the location of the property.
In general, the requirements for the property include a minimum value and a minimum amount of equity. The minimum value is usually determined by the lender and can range from $75,000 to $1 million or more, depending on the lender and the location of the property.
The minimum amount of equity required is typically 20% of the property’s value, although this can vary once again on the lender and the location.
In addition to these requirements, the property owner must also meet certain credit and income guidelines in order to qualify for delayed financing.
This may include a specific credit score that may be higher than average, a minimum income, and a debt-to-income ratio that meets the lender’s guidelines.
Bottom Line: Is Delayed Financing Right For You?
Whether you're able to afford the property on an all-cash basis or need some financing, delayed financing can be a good option. You'll enjoy the opportunity to buy a home without needing to get any credit and also have cash available for other expenses at the same time.
Interested in getting the money you have tied up in your house? Talk to a Home Loan Expert today at PMA