In many states across the United States of America, people interested in purchasing a home for themselves and their families are facing numerous challenges. People have now become all too familiar with the pain of the current supply shortage. Inventory has become increasingly tight, and prices are at an all-time high due to inflation nationwide. The fierce competition further makes it quite troublesome to find your dream property and actually acquire it within your financial setting.
Amidst this situation, cash buyers are frequently pushing out loan-dependent bidders for homes. This has inspired buyers to rely on new and creative strategies for making strong offers for their chosen properties that can’t be refused. One such strategy is delayed financing, and it allows buyers across America to make compelling cash offers on their chosen property while also borrowing money to purchase the home. Let’s find out what it is and how it works.
What is Delayed Financing?
Delayed financing is the process of using cash, or even stocks, to buy a house. The homeowner can then obtain a mortgage once the house is purchased to get back the investment they have put into the property. Doing so allows them to enjoy the privileges of being a cash buyer while still having a mortgage plan for additional leverage and financial stability.
Delayed financing can be thought of as purchasing a home and then opting for a cash-out mortgage or refinancing policy. This lets you enjoy lower prices as per the prevailing rates for all cash-out refinance.
Pros of Delayed Financing
- Cash offers allow you to stand out in competitive markets as they are highly attractive to sellers. They allow the benefits of a fast and simple closing timeline that is preferred by most sellers.
- Buying homes with cash is the best way to secure fixer-upper properties. They don’t generally pass home inspections, so delayed financing is the best way to fix them up while you move in.
- Real estate investors prefer cash-out mortgages as they are tax-deductible and allow them to grow their portfolios.
- Buying in cash allows more room for negotiations since these offers are highly attractive. By opting for delayed financing, you can sometimes get a lower purchasing price than with a typical mortgage plan.
Cons of Delayed Financing
- The most notable drawback of delayed financing is the fact that you need a lot of capital upfront. This is why it is mostly used by real estate investors and wealthy buyers who have sufficient amounts of spare cash to make it work.
- When it comes to refinancing the home, cash buyers have no option but to opt for conventional loans since delayed financing isn’t compatible with VA, USDA, or even FHA loans.
- Cash buyers are required to provide additional information to lenders, including proof of cash payment, where the cash was obtained from, and evidence of non-relation to the seller.
The Most Common All-Cash Buyers in Real Estate
You have probably realized by now that buying homes with cash isn’t a common practice for first-home buyers. Homeowners who are purchasing their first property tend to stay away from this form of payment. Instead, it is better suited for people who have access to a large stream of capital, as they can afford delayed financing without any trouble.
It is important to note that cash transactions are becoming increasingly popular in real estate. The question then arises, who exactly are these all-cash buyers? It turns out there are numerous situations that lead to people opting to buy homes with cash and eventually using delayed financing. Let’s find out who these individuals are:
Real Estate Investors
For starters, delayed financing is largely popular among real estate investors as they often prefer all-cash transactions. These investors consistently look for means of securing properties that are under the market value, and cash offers are the best way to acquire them. Through delayed financing, investors get the opportunity to then put funds further into another investment and continue forth.
Many homeowners have completely paid off their mortgages. These homeowners have ample amount of funds available to put up cash offers and buy homes with cash. This is especially true if they plan on downsizing. The best way that homeowners can execute this real estate strategy is by tapping into their current investment portfolios and utilizing their existing equities.
Buying homes with cash gives homeowners the perfect opportunity to purchase a property that is in need of repairs for a significantly lower cost. This strategy is most commonly used by rehabbing enthusiasts that enjoy flipping properties and selling them off at a commendable profit margin.
How to Apply for a Cash-Out Mortgage
Now that you know all the details about delayed financing, let’s find out how you can get a cash-out mortgage for your next property investment.
Reach Out to Your Financial Advisor
The first thing you need to do is speak to your financial advisor as well as a trusted real estate agent. Discuss and assess all of the risks and benefits with them, and determine whether the cash offer will help you stand out in the market. Be sure to also consider any consequences of putting out a cash offer and the consequences if the property ends up having any major problems or tax implications.
Meet All Eligibility Requirements
Once you’ve got the green signal for a property, you should go over all of the eligibility requirements and fulfill them. Here are some of the most important ones to consider:
- Having no personal relationship with the seller.
- Document your sources of cash that is used to purchase the home.
- Only borrowing the purchase price of the property.
- Ensure that the home comes with a clear title.
Fill out the Mortgage Application
Fill out an application form for a mortgage with your lender within a time period of 6 months after the purchase. Include all your details about your finances and credit history.
Summing It Up
Cash buyers can easily benefit from a leg up in the real estate industry since it allows a simple and smooth timeline. However, it is important to realize that buying homes in cash isn’t a feasible option for everyone. Delayed financing is an effective strategy for investors and wealthy buyers to take advantage of the many perks that come with cash payments. But be sure to consider all of the pros and cons before going forward with this strategy.