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How to Pull Cash From the Home You Just Bought

by Mike Morse

As this exuberant housing market takes shape, the chance to harvest equity – to tap into idle cash – from your home may prove to be a worthwhile endeavor. In March 2011, Fannie Mae lifted the requirement 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 liquidity, purchase other real estate, do home improvements or pay off debt. However, while it is a viable strategy, successfully sealing the deal on the “delayed financing” is something else entirely. Here’s what you need to know.

A Free and Clear Property
The property – whether it’s a single-family residence, multi-family property, condominium or planned unit development – must be free and clear of any liens. In other words, 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 months, as previous guidelines required. In a competitive purchase market with multiple offers, using this strategy to buy other real estate can give you an advantage, because with cash financing, the close of escrow can be days rather than weeks, as other buyers line up financing.

Supporting Documentation
This is where things can get tricky. If you’ve gotten a mortgage in the past three years, you’ll know the level of documentation and scrutiny 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 key to getting the cash.

Delayed Financing Essentials
You can 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 be $280,000. That 70% is applicable to a primary home, second home or investment property.

The new loan amount cannot be more than the documented amount of the initial capital used to acquire the property, including any applicable closing costs, prepaid fees (taxes and insurance) 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 could lead to adjustments, as well — like your credit score, or the property type you’re refinancing (however, most delayed financing is sought for occupancy and investment properties).
There can be no relationship between the buyer and seller on delayed financing loans. Sorry gang, you cannot buy the home from your grandmother with cash, then re-mortgage immediately. This would revert back to the full six-month hold time. The relationship between the buyer and the seller must be at what’s called an “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 called a HUD-1. This will support the fact no other liens were used to acquire the property.

Where Things Get Technical Fast
Properly sourcing the funds you use to acquire the property is essential. This means you’ll need to provide bank statements, personal loan documents, how the property was acquired — with every dollar accounted for. This is where it would be helpful to work with a lender who is proficient in successfully closing delayed financing deals.

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 on the new loan being sought. The same goes for any other loans between parties used to purchase the property — they must be paid off through the net proceeds by closing time. The refinance provides a window for people looking to keep their cash liquid while at the same time conservatively leveraging real estate.

Published by: Scott Sheldon is a senior loan officer and consumer advocate based in Santa Rosa, California. His work has appeared in Yahoo! Homes, CNN Money, MarketWatch and The Wall Street Journal. Connect with him at Sonoma County Mortgages.

Should I Buy a Home Now?

by Mike Morse

We are often asked if this is a good time to buy a home. Some clients are concerned that home prices may fall down the road, while others are convinced that home prices will go up.

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Even though interest rates have fluctuated, they are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, a one point rise in interest rates could cost tens of thousands of dollars over the life of your mortgage!

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's relatively low interest rates while they are still available.

Please give a Morse Real Estate RealtorĀ® a call if we can be of any assistance in determining how much home you can afford in today's market.

Mike Morse
Broker & Owner
(402) 677-6356

Back-to-School Home Search Tips

by Mike Morse

It’s that time of year when families consider moving to get their children into a good school district. At realtor.com we recently conducted a back-to-school survey to see how much weight schools have in the home-buying decision. The results show that school-district boundaries do impact the buying decision for more than 60 percent of realtor.com home buyers.

We also found that home buyers are willing to pay more and give up certain features for a home located in their district of choice. These buyers are especially willing to give up access to shopping and nearby parks and trails, among other amenities, to reside within the school-district boundaries of their choice.

A majority of the home buyers surveyed said that school-district boundaries will have an impact on their buying decision:

23.59 percent would pay 1-5 percent above budget
20.70 percent would pay 6-10 percent above budget
8.98 percent would pay 11-20 percent above budget
40.33 percent would not go above budget
For home buyers who said that school-district boundaries will have an impact on their decision, the majority rated the boundaries as an “important” consideration:

90.53 percent said school-district boundaries are  “important” or “somewhat important”
2.04 percent were “neutral” about the importance of school-district boundaries
7.43 percent said school-district boundaries are “unimportant” or “very unimportant”
A new house can mean more space, great neighborhoods and good schools. Follow these five tips to find your dream home near the right school:

Know your family’s needs. Is your family growing? Is square footage the most important factor, or a large backyard? Make a list of exactly what you need in your family’s new home.
Search for homes by the best schools with the realtor.com mobile app. Only realtor.com lets you search for the home you want near the ideal school or school district.
Review school information in the app. The Schools tab provides detailed information about the grades taught at each school, including the student-teacher ratio and the GreatSchools rating.
Look for parks and play areas in the map view. View your search results on a map and narrow results by homes that have a place for your kids to get the wiggles out. You can also look for other things that matter to you, like how far away it is from a baseball diamond. Draw your own search boundary with your finger, if a specific area really matters to you.
Make a list of questions for your Realtor. When you’re ready to tour the homes on your short list, be prepared with the questions that will help you make the best investment. Ask about things that matter specifically to you and your family but also what matters for the home’s future value. Your Realtor will be able to guide you to find the right home, in the right location, near the right school.

Provided by Realtor.com

Displaying blog entries 1-3 of 3