It is no surprise there is significantly more demand for housing than there is enough supply creating intense competition. If you’re pre-approved and home hunting, here’s what you need to know if your competition has cash…
All Cash Offers
No matter what there is a chance you will lose out to the competition on a particular home you’d like to purchase because an all cash offer is more attractive than yours. It’s the law of the land. These offers are considered the cream of the crop as there no financing contingency, usually no appraisal contingency, all coupled with a quick, easy close for the seller. While this remains, know this, cash offers typically come from people with the mentality “I’m all-cash I’m going to low ball.”If you’re hearing from your real estate agent, there’s interest from all cash buyers, do not let that be a deterrent, because many no financing buyers are looking for a deal. All-cash buyers do not necessarily get preferential treatment in the eyes of seller when low balling.
Loans With Big Down Payments
Generally, a buyer using conventional financing with 20% down looks stronger on paper than a buyer with less than 20% down. This convey the buyer with more cash may be able to perform more easily, an appealing factor for a seller. While this might not always be the case, the general consensus amongst real estate professionals, is loans with a bigger down payment are stronger. If you are working with less skin in the game, price can offset a stronger financially appearing offer.
Big Bank Accounts
If you have the ability to produce a bank statement showing you have additional funds in the bank, this can go a long way when negotiating a real estate deal independent of your down payment. Large cash in the bank is appealing to a seller, even if you’re taking out financing for the purchase. Perhaps it’s more advantageous for you to take out financing considering the tax benefits than it is for you to pay all cash for a home. Even if you do not plan to use all your monies, showing proof of funds to close makes a big strong statement to a seller you are a serious buyer.
Stigma Tied To FHA Loans
FHA loans still have a stigma they are problematic and harder to obtain due to credit standards and property conditions. It is believed buyers working with FHA Loans are not as strong on paper, due to working with only 3.5% down, which means the possible likelihood of the buyer falling out of escrow because they cannot qualify. This can be taken care of right up front by making sure you are properly pre-approved with the loan application, credit report and giving the lender whom you’re working with full authority to review your financials to make sure you are completely bulletproof.
Note: A good loan officer will call the listing agent with your buyer’s agent’s permission to let them know how well-qualified you are to bury any concerns about qualifying integrity.
If we rewind the clock a few years, the lion’s share of listings on the market were all short sales, foreclosures and distressed properties. Buyers working with FHA loans typically had problematic scenarios because the FHA is very particular about a property being acceptable to meet health and safety concerns. The types of properties on the market now are far different than the homes available on the market just a mere few years ago, as a result, nearly all the listings have equity and acceptable appraisal standards.
Seller Motivation
When a seller lists their home they consider:
- Price
- Speed
- Flexibility
If you can match the seller’s expectations on all three of these, or least two out of the three, your chances for getting an accepted offer increase. Perhaps while price is important, speed is more important because they’re closing on a replacement property of their own for example, and they have their own separate escrow and are the under the gun for contractual time frames themselves. Ultimately, cash and price go hand in hand. A reputable buyer’s agent and loan officer working together tandem can help convey this to the listing agent and ultimately to the seller, so you’re in contract sooner rather than later.
Looking to get a second opinion on a mortgage? Or to get pre-approved? Begin by getting a complementary mortgage rate quote online now.
