Hey folks, welcome back to this month’s Inside Track. I am your host, Joe Libin at Latitude Lending, one of Salt Lake City’s top mortgage brokers. I get to see and hear about all kinds of interesting circumstances, and this is one that just came up, and I thought I’d share it with you. Sometimes folks either choose to pay cash for a home or end up in a situation where they did not go with me, they had financing issues, things fell through, and they had to scramble, liquidate assets, and use cash to buy a home. That’s kind of what happened, the latter of the two in this case, but I want you to be aware of this option. If you pay cash for a home but you want to get your money back, that is actually something that is possible. Cash still does talk, especially with investment properties and things like that. But it’s also good to get your money back to be able to reinvest it wherever you brought it out from. So I want to teach about this delayed financing option. What is it? How does it work? Real simple. If you pay cash for a home, you can get that money back through the delayed financing option.
A few things to be aware of. Really, it’s a matter of documentation. We have to get the settlement statement from the sale. When you buy the home, obviously you get a settlement statement that shows what you paid for it. That statement’s also going to show that there’s not a mortgage on the property and that you paid cash for it. That’s pretty simple. The next thing we need is to source the funds that you used to buy the home. In this case I was talking about a minute ago, they’re liquidating a bunch of stock and bonds out of their portfolio. We’re just going to use their month-end statement to show that they sold those securities and those bonds, and then we’re able to easily document the money that was used to buy the home. Sometimes folks will use some other resource like a HELOC from another property, or they’ll do a private money loan or something like that. Maybe that’s not recorded against the subject property, the property they just bought, but it’s actually tied to a different property. That’s okay too. But when we do the refinance to give you your money back, if there is a loan on there, we do have to pay that back. If there’s a private money loan or you used a HELOC from another property, that money has to go to get paid back because that’s where the funds came from. But that is a possibility in the cases where there was a loan, unsecured or otherwise, used to buy that subject property.
A couple limitations, a couple things to be aware of. If there’s any gift funds used, those can’t be reimbursed. Obviously, they’re gift funds. And then just a few more quick caveats. It’s got to be an arm’s-length transaction. That means that you can’t have a relationship with the seller and you guys kind of do something together. That doesn’t fly. You have to be arm’s length. Number two, you have a six-month window. Similar to when you’re going to do a 1031 exchange, you have a certain amount of time to get this done. Same sort of idea. You’ve got to get it done within the first six months of owning the new property. On the downside, it’s subject to the normal cash-out loan adjustments, which means the interest rate is generally slightly higher than a normal rate-and-term refinance because you’re pulling money back out of it, and they deem that a little bit more risky. But that’s normal.
And then finally, what makes it an exception and makes it doable is that it’s exempt from the regular 12-month cash-out waiting period. Normally on a cash-out, if you buy a home and you want to go to the well and pull more money out of it, let’s say you already have a loan on there and you want to do a cash-out, you’ve got to wait 12 months to be able to do that. This delayed financing option is the exception. It’s exempt from that rule, and that’s what makes that fly. Hopefully that makes sense. If you have any questions about this or anything else, please reach out to me. Never too busy to help. Thanks for watching, and we’ll talk to you soon. Take care.
