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Pay Cash Now - Get a Loan Later

There is good news on the lending front for buyers who pay all cash for a property and then want to get a conventional conforming loan within six months of the purchase. Until recently, Fannie Mae guidelines required all cash buyers to wait a minimum of six months before they could obtain a conventional loan for the property. This requirement conflicted with IRS code that allows mortgage interest deduction only on loans placed within 90 days of purchase. Fannie Mae has revised their Selling Guide and will now allow a cash-out refinance within six months of an all cash purchase.

Fannie Mae Revision to Cash-out Waiting Period

To take advantage of the Fannie Mae revision to the cash-out waiting period, all of the following parameters must be met:

¥    The new loan amount cannot be more than the documented amount the borrower paid for the property.
¥    The purchase was an arms-length transaction.
¥    The source of funds for the purchase can be documented (e.g., bank statements, personal loan documents, HELOC on another property).
¥    Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1.
¥    All other cash-out refinance eligibility requirements are met and cash-out pricing is applied.

This revised Fannie Mae guideline lets buyers who pay all cash refinance with a conventional conforming loan within 90 days of the purchase and get the benefit of the IRS mortgage interest deduction. Of course, it is still less expensive for the buyer to obtain the conventional financing during the initial purchase, but when that isn’t possible, this revised guideline is a good alternative.

If you have questions about these matters, please contact me directly. Let me know how we can be of assistance to you.
Gayle Arrowood, Registered Mortgage Advisor, Opes Advisors, Inc. 707.529.4321 or garrowood@opesadvisors.com