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What is delayed financing?

How to buy a house with cash and then apply for a mortgage

Delayed financing is when you buy a home with cash and get a mortgage afterward using a cash out refinance. Delayed financing can help you enjoy the advantages of paying cash for a house without leaving that cash locked inside the equity of your home after the sale closes.

Why do homebuyers choose delayed financing?

Buying a house with cash has its advantages. The process can be simpler and faster because you don’t need to apply for a mortgage. Your cash offer may be more attractive to the seller for the same reasons, which can help when you are competing with other buyers. Paying cash might help you negotiate a lower sale price, too.

For some, buying a home with cash does have one major disadvantage—it converts your cash into home equity. Your cash is now unavailable for immediate access. For this reason, some homebuyers consider using delayed financing to have cash readily available once again.

How does delayed financing work?

If you are interested in delayed financing, you will need the cash to buy your home. Some homebuyers earn enough cash from the sale of an existing home to purchase a new one, especially if the new home is less expensive than the one sold. You can also use savings or cash from other assets to help you buy the home.

Once the home is purchased, you can immediately apply for delayed financing. Unlike other cash out refinances, which require a six- to twelve-month wait after buying the home before you apply, a delayed finance allows you to buy a home one day and apply for a mortgage the next.

As with a standard mortgage, you will need to complete an application, provide documents, and meet the lender’s credit, income, and financial requirements to get your mortgage approved. You’ll pay closing costs, and you’ll pay interest on the money you borrow.

You will also need to decide how much of the home’s value you want to finance. Lenders often will fund a mortgage for up to 80% of the home’s value. For example, if you buy a home for $300,000 in cash, you might be able to get a mortgage for up to $240,000.

You are not required to borrow this full amount. You may decide financing half the home’s value makes sense for you and get a mortgage for $150,000.

Finally, it can often take between 30 to 60 days to get your delayed financing approved. Make sure you can manage your expenses until the mortgage closes, and you get your cash.

What are the requirements for delayed financing?

You must meet all necessary requirements when you apply for delayed financing. This includes the requirement that the original home purchase must be an “arm’s-length” transaction, which means you and the seller are unrelated and unaffiliated, acting independently without one influencing another. When you buy a home from a family member or friend, for instance, it can be difficult to establish the sale was at arm’s length.

You need to document that no financing secured by the property was used to purchase the property You’ll also need to document the sources of the money you used to buy the house. If funds were borrowed to purchase the property, you must use the cash from the financing to pay off or pay down this loan.

A title report must also document no liens on the property. In addition, the new loan amount cannot be more than the amount of the initial purchase price plus closing costs.

Finally, you need to use a conventional loan for delayed refinancing. You cannot use an FHA or VA loan.

Last reviewed and updated June 2023 by Freedom Mortgage Corporation.

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