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Mortgaging a House Purchased with Cash

Mortgaging a House Purchased with Cash

We often get questions from clients about putting a mortgage on a property they purchased for cash. Sometimes, in a hot real estate market, paying cash and closing quickly is a necessity, but it isn’t always best in terms of leveraging wealth and/or tax considerations.* The IRS has guidelines regarding mortgage interest deductibility (see a partial summary below) when a home is bought with cash and then the buyer wants to get some of their cash back.** The other thing to know is that lenders have their own rules on mortgaging a property that was purchased with cash. Admittedly, what follows is technical. If you don’t feel like trying to figure it out please give me a call. If you like details, here is a recap of some of the rules that may apply. Delayed Financing Cash Out Refinance: For loans processed through DU or LP, borrowers who purchased the subject property within the past six months prior to the loan application date are eligible for a cash-out refinance if all of the following requirements are met: The loan must be approved via DU with an Approve / Eligible feedback or LP with an Accept Eligible feedback. The new loan amount is not more than the actual documented amount of the borrower’s initial investment in purchasing the property, plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV, CLTV ratios for the transaction). The purchase transaction must have been an arms-length transaction. If the seller of the property was an LLC, the principals of the LLC must be documented. The purchase transaction must be...