Can Delayed Financing Give You a Competitive Advantage When Making an Offer on a House?
Written by
Daria Uhlig
Edited by
Cynthia Measom
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A major stumbling block of buying a home is getting your offer accepted by the seller. The offer price might be the first thing they look at, but sellers also want assurance that the sale will go through. And that depends on the your ability to raise the cash to purchase the property outright or qualify for a mortgage loan to finance the purchase.
Delayed financing offers the best of both worlds — a cash purchase, which gives you an edge over most other buyers, plus a mortgage loan that puts cash back into your pocket.
What Is Delayed Financing?
Delayed financing is a strategy whereby a homebuyer purchases a home with cash and then finances the purchase after the fact with a conventional cash-out refinance loan. “Refinance” is actually a misnomer in this case because there’s no loan to refinance — the buyer paid cash. But that’s the type of loan you use to implement a delayed financing strategy.
While delayed financing lets you refinance sooner than if you’d financed the home with a mortgage loan, you’ll still have to meet certain requirements. In addition to verifying that you bought the home from an objective party, and not a close relative or someone else acting in your best interest instead of their own, you’ll need to provide closing documents showing there’s no mortgage or other lien on the home. The lender will also want to see proof of where purchase money came from — whether it was from your savings, for example, or a loan against another home, or a gift or loan from your family. And, of course, you must qualify for the refinance loan.
Potential Drawbacks of Delayed Financing
Although delayed financing strengthens your offer and gives you an edge over buyers who need to finance their purchase, you’ll likely pay a higher mortgage rate on the refi loan than you’d have paid on a purchase loan. In addition, you’ll tie up most of your equity, which increases the risk of foreclosure if a financial hardship keeps you from paying your mortgage. But the biggest risk could be that you won’t qualify for the refinance. If that happens, you could be left strapped for cash and/or unable to repay any loans you used to raise the cash for your purchase.
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