Can I get a mortgage on the replacement using exchange funds as the down payment?

The agency rule is explicit: exchange assets are an eligible source of down payment

Under the heading for like-kind exchanges, the Fannie Mae Selling Guide says that 'assets for the down payment from a “like-kind exchange,” also known as a 1031 exchange, are eligible if properly documented and in compliance with Internal Revenue Code Section 1031'. That is the residential agency standard for one-to-four-unit investment property.

Commercial and bridge lenders are not bound by it, but they reach the same place: the balance is verifiable, it is legally committed to this purchase, and it arrives by wire from a third party. Expect the underwriter to ask for the exchange agreement, the intermediary's statement of the account balance, and the settlement statement from the sale.

What no lender will accept is a verbal balance. Get the intermediary's written account statement into the file at application, not at the clear-to-close.

The wire has to go from the intermediary to escrow, never through your account

The safe harbor in Reg. §1.1031(k)-1(g)(6) survives only while the escrow is closed to you: no receipt, no pledge, no borrowing against it, no benefit of any kind until the period ends. Money that touches your account to satisfy a lender's seasoning or sourcing request is money you received.

That rules out the common lender suggestion of funding your own down payment and being reimbursed from the exchange afterwards. It also rules out pledging the escrow balance as collateral for the loan.

There is a second trap on the same wire. Lenders sometimes ask the borrower to bring an extra deposit to escrow before funding and then let the intermediary top it up; that inverts the order and leaves you funding part of your own replacement property. Have the closing agent hold the file open until the exchange wire lands, and let your escrow instructions say so in writing.

Tell the loan officer in the first conversation that the cash to close arrives from a qualified intermediary on the day of funding and cannot be seasoned in a personal account. The order of operations at the table is in does a 1031 delay my closing.

A lender that wants another name on the deed is a bigger problem than the rate

The taxpayer that sold has to be the taxpayer that buys. A single-member LLC does not break that rule, because the IRS treats 'an LLC with only one member' as an entity disregarded as separate from its owner for income tax purposes, so the member is still the taxpayer on the return.

The damage comes from vesting changes the lender asks for: a non-owner spouse added to the deed, a partner brought in to carry the debt-service coverage, or a new multi-member entity created to hold title. Each puts a different taxpayer on part of the replacement property, and the portion allocated to that taxpayer is not your replacement property.

Raise it at application and get the answer in writing. The boundaries are mapped in the same-taxpayer rule, adding a spouse to title and exchanging from your personal name into an LLC.

Worked example: $650,000 from the intermediary plus a $650,000 loan on a $1,300,000 purchase

Hypothetical, round numbers; have your CPA or attorney confirm the treatment for your own file. You sold for $1,200,000 and paid off a $500,000 loan, so the intermediary holds $650,000 after costs. You buy at $1,300,000 with the full $650,000 down and a new $650,000 first mortgage.

Nothing returns to you, the replacement value exceeds what you sold, and the $650,000 of new debt exceeds the $500,000 relieved, so there is no cash boot and no mortgage boot. Under Reg. §1.1031(d)-2 the excess debt is simply consideration you gave.

If the appraisal forces the loan down to $450,000, you are $50,000 short on debt. Writing a $50,000 personal check at closing fixes it, because cash paid offsets net liability relief; that netting is the subject of replace the mortgage or add cash.

• Loan proceeds paid to the seller are never boot to you; only money or property you receive is.
• Cash back to you at the table is boot even when the loan created it (does a bigger loan offset cash I keep).
• Points and rate buy-downs paid out of exchange funds raise a separate question (loan fees and points).

The 180-day date does not move for an underwriter, so build the loan around the calendar

Section 1031(a)(3) fixes receipt at the earlier of 180 days after the transfer or the due date of that year's return. Nothing in the statute bends for a delayed appraisal, a re-trade or a credit committee, as does a lender delay extend my deadline explains.

Treat day 45 as the loan deadline, not just the identification deadline. By then you should know the appraised value, the required vesting and whether the lender's conditions are clearable.

Sequence the file so nothing waits on the closing date itself.

• Order the appraisal and title the week the replacement goes under contract.
• Send the exchange agreement and the intermediary's account statement to underwriting at application.
• Confirm in writing that the lender will fund on the exact vesting that sold the relinquished property.
• Name a trust offering on the day-45 notice as the backup that needs no lender (using DSTs as backup properties).

If the loan will not close, a trust interest carries the debt without any borrower qualification

A Delaware Statutory Trust allocates its own non-recourse financing to each investor. The illustration used by 1031 Crowdfunding is a 50% loan-to-value trust where a $50,000 interest means '$25,000 in equity and... $25,000 of the trust's debt — without personally taking out a mortgage'. There is no application, no debt-service coverage test and no personal guarantee.

For a large debt-replacement number relative to small equity, the zero-cash-flow structure is built for exactly that ratio; see cash out DST, the zero cash flow DST timeline and does a DST's loan count as replacement debt. Splitting between a financed purchase and a trust interest is covered in splitting an exchange between a DST and a direct property.

The trade is control. A trust interest is a passive fractional position with no vote on the financing and no ability to refinance on your own timetable, so it solves a lender problem by removing the lender from your hands entirely. Weigh that against the deadline you are trying to protect.

As a 1031 exchange broker operating in all 50 states within a regulated broker-dealer framework, we have spent twenty-plus years and over a billion dollars placing exchangers with vetted national DST sponsors.