home loans

In a strong real estate market, the hardest buyer to compete against is the one who comes with cash. If you’ve lost out to cash buyers on multiple homes, it may be time to explore new strategies. While an all-cash bid is appealing, it isn't a guarantee that a seller will accept the offer. Sometimes sellers want to know that their home is going to someone who will appreciate and take care of it. As long as that buyer is able to come close to the asking price and offer assurance that their financing is in order, the owner may choose them over a real estate investor coming in with all cash, but simply looking to turn a profit. Don't let the fear of having to compete with all-cash buyers might deter some potential homeowners from making an offer on their dream house. Here, REX agents weigh in with some tips to help you compete with all-cash offers! 1. Have a pre-approved loan in hand, not just a pre-qualification "Make your offer more attractive by having a pre-approved loan, submitting proof of funds, and only asking for repairs if it’s something major."REX Agent Jim Bray, Bakersfield, CA When you’re a buyer in a seller’s market, you need an edge to make your offer stand out against the inevitable all-cash bid. However, you don’t always have to offer the most money to attract the attention of a seller. Having a competitive offer and proof that you have the funds to close the deal can help make the difference when a seller is considering what offer to accept. A letter stating that you have been pre-approved for a certain loan amount gives the seller confidence that you can afford the deal and are a serious buyer. It tells the seller that you'll be likely pass through the underwriting and close quickly. These factors are often as important to the seller as the price. A mortgage pre-approval is different from being pre-qualified. A mortgage pre-qualification means that you have an estimate from a lender on how large of a loan you’re likely to receive. This pre-qualification is based on a soft credit check and basic financial information the lender received from you. While this is a start, it doesn’t prove that the lender verified your data or that you’ll qualify for that size loan. Being pre-approved carries more weight because it’s based on verified data by the lender. Once approved, you’ll be provided with a pre-approval letter up to a specific amount. Having a pre-approved loan will speed up the buying process, which is helpful in a competitive market. 2. Submit proof of funds to eliminate financing and appraisal worries. In an extreme seller’s market, the appraisal process can be one of the most significant issues encountered. Houses will be selling above the appraisal, yet your loan will be based on the appraisal. Ultimately, it’s up to the buyer to pay the difference in cost. You’ll need a plan to show you can cover the additional cost. Showing that you can make the down payment plus the difference between the appraisal value and asking price can make your offer more attractive to a seller. Submitting proof of funds with your bid will show you have the assets to close the deal. 3. Shop lenders and loan types to find the least restrictive financing package available to you. "Having a less restrictive financing package can make the difference. Be sure to explore your options!"REX Agent Christy Hall, Ft. Lauderdale, FL In a competitive market, having the loan with the fewest restrictions can give you an edge when you’re competing against all cash. For instance, some loan types may require that certain repairs or property conditions be met to make the loan. This requirement can be less appealing to a seller since this can slow the sale, especially if they don’t agree with the required repairs. If both parties can’t agree on the requirements, the deal may fall through. Based on her experience, REX agent Christy Hall has observed, for instance, that if a buyer presents a VA loan or Federal Housing Association (FHA) loan, they might not be as successful as a buyer who qualifies for a conventional loan, especially if they are capable of putting 20 percent down. Therefore, if you qualify for more than one type of loan, consider selecting the one that provides the most attractive offer to the seller. This is where it can pay to shop around for different lending products you might qualify for, or buyer rebate programs that might help you put more towards a down payment at closing to signal your purchasing strength against all cash. 4. Make your offer airtight with a cash-backed offer from your lender. While most buyer's don't have nearly enough saved to buy a home outright, being outbid by all-cash investors or recent sellers coming from more expensive markets can be devastating for the typical buyer relying on a mortgage loan. That's why it pays to know your options. With the right lender and credit, you may be able to make an all cash offer -- even without the cash. A cash-backed offer is one of the most attractive solutions for competing with all cash. In this scenario, a lender will approve a buyer for a mortgage loan ahead of submitting a bid and use their own cash reserves to purchase the home on the buyer’s behalf. The lender will then transfer the contract to the buyer at closing with their approved mortgage loan attached. This type of funding solution generally requires excellent credit and a fully underwritten loan approval from your lender before making your offer. The underwriting process will include a hard credit pull and detailed verification of your debts and assets. While requiring more preparation up front, a cash-backed bid is generally more attractive to sellers because it isn't reliant on financing contingencies. There is little concern about the deal going through, since the lender is right there on the contract as the one who will be paying the seller cash. To a seller, the reassurance that your offer will close on time may even be worth more than a higher offer contingent on the buyer getting financing. Cash-backed lending is relatively new to the housing market, and loan options vary by lender and region, it can pay to talk to a non-commissioned loan advisor (one who doesn’t get commission from your loan or incentives from pushing you toward a certain lender) who can help you sort through a variety of different options to find the one that works best for you. 5. Consider waiving certain contingencies to make your offer more attractive. Contingencies are written into an offer contract to protect buyers from certain unknowns - like foundation issues that come up during a home inspection or legal issues disclosed by a title company during escrow. Common contingencies that buyers ask for include appraisal, inspection, mortgage/financing, and title. If a buyer's funding falls through during the escrow process, or something nasty shows up on an inspection report, contingencies give the buyer the legal means to pull out of the deal. It's no surprise, then, that for sellers, the most attractive offers are contingency free. When an offer isn't contingent on meeting certain conditions, the seller can feel more confident that the transaction will be smooth and hiccup-free. In a bidding war, buyers looking for an edge sometimes opt to waive contingencies to make their offer stand out against those that come with more baggage in the form of buyer loopholes. As a buyer, before you start tossing out contingencies left and right, know the implications and consider which ones you can reasonably live without -- and when the choice to do so may constitute more risk than reward. For example, removing a financing contingency means that you are on the hook for buying the house even if your loan doesn't get approved from your lender. This is great news to a seller, especially one who needs to move on a tight timeline and wants the reassurance that you will be able to follow through once you offer is accepted. Cash buyers already have their funding in hand have no need to make an offer contingent on financing. On the other hand, if you are relying on getting a mortgage and are at all worried about your loan being approved, you will want to think again before tossing out the financing contingency. Another contingency that sometimes gets waived in a cash bidding war is the appraisal. This assures the seller that the loan won't fall apart if the home's appraisal value is less than the offer price. For a cash buyer planning to purchase a home outright, an appraisal may not matter, unless they are concerned about overpaying by a significant amount. For buyers planning to take out a mortgage, however, an appraisal waiver could present a problem if the home doesn't appraise for the offer amount. Before approving a mortgage, most lenders will want to know that the home's value will make up for their sunk costs if the borrower defaults on the loan. When a home appraises for less than the offer price, a lender may deny the borrow a loan or ask them to come up with additional cash to make up the difference. If you're considering submitting an offer with no appraisal, you'll want have enough money in the bank to cover the extra down payment at closing. Ahead of going all-in to compete against a cash offer, be sure to have a clear idea of which contingencies you're safely willing to concede to make your offer more attractive. 6. Personalize your offer to the seller Selling a home is not only one of the most significant financial transactions a person makes in life, it can also be one of the most emotional. While getting top dollar is great, some sellers are just as interested in knowing their home is going to be taken care of after they've left. As a buyer, one of the more direct ways to strengthen your offer have your agent find out what is truly important to the seller. Don't assume that price is their only motivating factor. Maybe having some extra time to pack up and make repairs is important, or perhaps the seller would be more open to signing a contract contingent on their finding a suitable replacement property. Learn what drives and motivates the seller and cater your offer around that. If you can present an offer that is tailored to what the seller wants, your offer becomes more appealing. Sending in a personal letter with your offer can also sometimes go a long way to making your offer stand out, even if it's going up against a higher bid. REX can help you put together your most competitive offer Whether you want to talk to an experienced local agent about strategies to strengthen your offer, or explore competitive lending options with a loan advisor who won’t take a commission, REX is here to help you. By backing our agents’ local knowledge with in-house expertise in real estate brokerage, mortgage, title, escrow, and home services, we offer all the help you need to feel secure about your home purchase and confident that you are getting the right deal. Here are some other articles you may enjoy: How Savvy Home Buyers Win in a Seller’s MarketDifferences Between REX and Traditional Brokerages5 ways to win a bidding war on a houseUnderstanding the mortgage application processYour Guide to Understanding Closing Costs

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