Since I have heard several people mentioning this scenario, I thought I would share the current state of things in the lending world. First the scenario:
A buyer looking to purchase a home, for whatever reason (maybe it's a multiple-offers, or maybe they are trying to negotiate a better deal by closing faster with cash), they have decided to purchase the property with all cash. The thinking is that they would purchase first, and then right away take cash out from the property. This would be no different from getting a loan in the first place, other than taking a 2-step approach vs. 1 step.
What's the significance here? Well, according to IRS (please double check with your tax consultant), you can only deduct mortgage interest from your tax liability based on the acquisition indebtedness, unless the cash out is done within 90 days of the initial purchase. So, most people think the scenario described above would help them accomplish their goal of getting a good deal while not losing any tax benefits.
The problem here is that most lenders today have a 6-month seasoning requirement on cash-out transactions, meaning the owner would have to wait for 6 months before they can do the cash-out.
So, for those who are contemplating doing the above, be sure to check all fronts before jumping in.
