Can mortgage borrowers compete with cash offers?
Roughly one in four homebuyers makes an offer in today’s real estate market for cash.
These cash offers offer guaranteed cash and quick closings, which can be tempting for impatient sellers.
Unfortunately, not everyone can afford to shell out hundreds of thousands of cash up front. Most buyers (especially first-time home buyers) rely on mortgages to finance their home purchase.
But if you’re in that boat, there are still ways to compete – even with the largest number of buyers. Here’s how.
7 tips to compete with an all-cash offer
It’s no secret that the housing market is on fire. In fact, according to real estate brokerage Redfin, a whopping three-quarters of buyers face bargaining these days.
To stand out from the pack, many buyers (25% actually) make money offers.
Offering cash can definitely get the attention of sellers, but there are other ways to make the deal more enjoyable if you’re using a mortgage.
Here are just a few of them that will help you beat the competition:
1. Get approved for a mortgage
Receiving pre-approval of a mortgage before you try to make a home offer, be sure.
Many mortgage lenders offer fully guaranteed pre-approval, which means that your loan has been checked and your finances have been checked. Basically, this is “complete cleanliness” for your mortgage, except that you haven’t found a home yet.
With these types of pre-approval, you can instill confidence in sellers. Even with the financing contingencies in your contract, they know you are a safe bet to buy their home and fulfill it.
2. Waiver of contingencies
The easier you make things for the salesperson, the better. And abandoning contingencies? This is one of the best ways to do it.
This may mean giving up:
- Contingency funding: Avoiding this contingency means you won’t be able to get out of the deal if your mortgage fails.
- Inspection unforeseen circumstances: This will allow you to inspect the home before purchasing.
- Unforeseen circumstances of the sale: This one is reserved for existing homeowners and stipulates that you must sell your existing home before making a purchase. (This is also one of the least attractive circumstances for sellers)
- Unforeseen circumstances in the assessment: This allows you to step back or renegotiate the terms if your score turns out to be low.
Keep in mind that giving up on contingencies is risky.
Refusal to check may mean no major problems or property repairs, while giving up on an unforeseen appraisal can mean paying a lot out of pocket if the home is not valued high enough.
Be sure to talk to your agent about the risks and benefits of avoiding contingencies if you are considering this.
3. Increase your deposit.
Deposit is essentially a bona fide deposit. He reserves the right to buy the house, and if you withdraw from the contract for no reason, the seller keeps it for himself.
If you really want to stand out, increasing your deposit is a great way to do it. This shows the seller that you are serious about buying their home and are willing to stake your hard-earned money on it.
4. Bid above asking price
Cash buyers often come up with offers at prices below asking price, mainly due to the ease of their transactions. If you are faced with a cash buyer who is underpricing the seller, going beyond the listing price can be a way to stand out.
You might also consider including an escalation clause that automatically increases your bid if someone outbids your bid (up to a certain threshold, of course).
5. Include a no-score guarantee.
In today’s hot market, estimates are often understated. This naturally worries sellers (they don’t want you to exit the deal if low home score).
To address these concerns, you can add a No Rating Guarantee to your proposal. This tells the seller that you will cover any discrepancy between the rate and the assessed value.
This is usually only an option if you have some extra cash saved on top of your down payment. Covering valuation gaps would mean an extra charge Higher and higher money that you put into your lender.
6. Be personal
You can also write a personalized offer letter to the seller detailing what you like about the home and why it is perfect for your family. Some buyers even include pictures of their children or pets with them.
This is a good way to stand out from other buyers and really engage the sellers.
7. Consider an alternative to the money supply.
Some companies offer cash purchase solutions that don’t actually require prepayment.
Ribbon, for example, lets you pay 1% of the value of a home (i.e. $ 2,000 for a $ 200,000 home) and then backs up your offer with cash.
There are other similar options, including Accept.inc, Homeward, and others. Big brands like Opendoor and Homelight also have cash offer programs.
Cash buyers are common in today’s housing market, but they are by no means invincible.
Talk to your agent, get pre-approval from your mortgage lender, and start looking for a home that’s ready to compete.