Mortgage Blog

New Way to Buy a Home: Cash Now, Mortgage Later?

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If you purchased a home (or tried) at some point in the past few years, you might go up against a cash-only buyer who beat out your offer if you were attempting to finance the purchase with a mortgage. Unfortunately, that has been the reality for countless potential homeowners as cash-flush individuals have made a home purchase even more challenging.  In the first half of the year, 44% of home sales were all-cash, and that percentage increases in high-priced markets.  In most cases, regardless of the creditworthiness of the borrower, cash is king. 

So what do you do?  Short of spending hundreds of thousands of dollars and potentially depleting your liquid assets, how can you compete?  HousingWire reports on a fascinating article in The New York Times that details an innovative way borrowers can begin to level the playing field, particularly in hot housing markets.  A recent change in Fannie Mae's policy allows borrowers to purchase the home using cash and immediately follow-up with a cash-out refinance to essentially return your money to you.  Before the change, which the federal government implemented to give the housing market a boost five years ago, borrowers had to wait at least six months to refinance their mortgages.  Now the refinance can almost be done in tandem with the cash purchase. However, the program does have a few requirements, including:

Borrowers must prove there are no liens against the home. Buyers must document the source of the cash used in the purchase. The sale must be conducted at an "arm's length." That means the seller and buyer can't be a relative or business partner. How much cash you can take out is also limited – under the Fannie Mae program, a maximum of 70% of the value (appraised) of the home.

While the program isn't necessarily a silver bullet when doing battle with all-cash buyers, for some borrowers (again, particularly those in hot local housing markets), it could be a solution that allows for home buying possibilities to be expanded.  Before going this route, however, make sure you do your homework, investigate the program, talk with your mortgage loan originator and real estate agent, and see if it makes sense for you.  For more information, check out the full article from The New York Times.