The delayed financing exception (DFE) allows a borrower who purchased a property with cash to pull cash out via a refinance immediately after closing, bypassing the standard six-month seasoning rule. Used correctly, it converts an all-cash offer into a leveraged position without the waiting period.
Fannie Mae Requirements for DFE
To qualify under Fannie Mae's DFE guidelines, the original purchase must have been all cash with no financing involved. The new loan amount cannot exceed the original purchase price plus documented closing costs and prepaid items. The title must show the borrower purchased the property within the past 12 months. A copy of the HUD-1 or Closing Disclosure from the original purchase is required at the time of the refinance. The property cannot be listed for sale at the time of application.
What Disqualifies a DFE
- ✦Any financing on the original purchase disqualifies the transaction, including seller financing, private notes, or HELOC funds used at closing.
- ✦If the borrower received any portion of the purchase funds as a gift, the DFE is not available.
- ✦Properties acquired through a 1031 exchange do not qualify.
- ✦If the original purchase source of funds cannot be fully documented, underwriting will decline the exception.
How MLOs Use the DFE Strategy
Real estate investors use the DFE to buy competitively in cash and then refinance out most of their capital within days of closing. The strategy works best when purchase prices are below appraised value and there is equity available on day one. DSCR lenders also offer DFE-style products for investment properties, though their own overlays may differ from Fannie Mae guidelines, and some require a minimum 30-day seasoning period after closing.
Aria can walk through any delayed financing scenario, including DSCR and conventional DFE eligibility, and cite the exact guideline requirements. Ask at vicariointel.com.
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