How to Pull Cash From the Home You Just Brought While the housing market continues to take shape, the opportunity to harvest, to tap into idle cash, from your home may prove to be worthwhile. In March of 2011, Fannie Mae lifted the requirement stating that you had to hold title to a property for six months before you were allowed to access your cash equity. The change has since allowed homeowners to acquire property and then immediately cash-out refinance to replenish equity, purchase other real estate, do home improvements or pay off debt. While it is a feasible strategy, successfully executing the deal on the “delayed financing” is another issue. Here’s some tips and information on what you need to know. A Free and Clear Property: The property, whether a single-family home, multi-family residence, condo and/or planned unit development, must be free and clear of any liens. This means, there can be no recorded mortgages on the title. Essentially, you can pay cash for a house, then turn around and immediately do a cash-out refinance without having to wait six month, as per previous restrictions. With the market being competitive and flooded with multiple offers, using this strategy to buy other real estate can give you the advantage, because with cash financing, the close of escrow can be days rather than weeks, as other buyers line up financing. Supporting Documentation: If you have obtained a mortgage in the past three years, you will need the level of documentation and intrusive underwriting gives to supporting documentation, as well as credit, debt, income, and assets. Such is true with the “delayed financing rule refinance” – supporting documentation is the key to getting cash. Delayed Financing Essentials: You are allowed to access up to 70% of the current appraised value or the acquisition price of the property, whichever is lower. For example, if the price of the home was $400,000, with an appraised value $425,000- 70% of $400,000 would be used, so the maximum loan amount would then be $280,000. That 70% is applicable to primary home, second home or investment property. The new loan amount can’t be more than the documented amount of the initial capital used to acquire the property, including any applicable closing costs, prepaid fees (taxes & insurances) or associated discount points. The rates and terms are proportionately higher. A cash-out refinance will contain an added small margin because the loan is a “cash-out.” Other factors such as your credit score, or the property type you’re refinancing could lead to adjustments. The most delayed refinancing is sought for occupancy and investment properties. There can be no relationship between the buyer and seller on delayed financing loans. The relationship between the buyer and seller must be at what’s considered “arm’s length.” If the original seller of the property was an entity such as an LLC, principles of the LLC must be documented with their ability to sign on behalf of the entity. The final closing statement from the recently acquired property must be provided (also known as a HUD-1. This will support the fact no other liens were used to acquire the property. Properly sourcing the funds you use to acquire the property is vital and essential which means you will need to provide bank statements, personal loan documents, how the property was documents – with every dollar accounted for. Finally, while the property for which you’re seeking a cash-out refi must be free and clear of liens, there is an exception. If you took out a personal loan to purchase the property that can be acceptable as long as the terms are provided and the personal loan is paid off through the proceeds of the new loan being sought. The same goes for other loans between parties used to purchase the property; they must be paid off through the net proceeds by closing times. The refinance provides a window for people looking to keep their cash liquid while at the same time conservatively leveraging real estate.
Posted on: Thu, 19 Sep 2013 19:45:57 +0000
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