Financing after closing gains momentum in U.S.

November 09, 2012 12:30PM

A tight inventory of luxury homes nationwide has pushed potential buyers to look their best and one way to make a bid look spectacular is to offer all-cash. But paying up front doesn’t mean that these cash buyers aren’t financing after the fact.  The Wall Street Journal reported that delayed financing — taking out a mortgage after the deal has closed — has  picked up over the past 12 months.

The trend is most pronounced in affluent coastal cities like New York, Miami and San Francisco according to the Journal. After dropping a few million on a home, these buyers want to regain some of their previous liquidity and so they take out a mortgage. And in some cases they are investing their loans, hoping for returns above their interest rate.

But not all delayed-financing loans are made equal. Some lenders, including Wells Fargo  and Fremont Bank, charge the same interest rate and fees on the mortgage regardless of whether the deal has closed.  Others charge a rate somewhere between a regular mortgage and a more expensive cash-out refi, in which a borrower with a mortgage also takes equity out of the property.

“It was an extremely unusual phenomenon, but it’s going on quite a bit now,” Jack McCabe, an independent housing analyst in Deerfield Beach, Fla., said.

However, as The Real Deal previously reported, the trend isn’t all that new in New York, where white-glove co-ops have long demanded cash-up front and restricted the use of financing, spurring buyers to borrow after the fact. [WSJ]Christopher Cameron