Is it possible for buyers using financing competing against cash offers to actually get their offer accepted? It is possible and today we’re going to present some tips to assist you in buying a home with financing to strengthen your offer. Buyers using financing competing against cash offers is something home buyers have to deal with today regularly. Real estate is still one of the best investments out there and so the home you’re looking to buy to live in might just be the same home a savvy investor wants to purchase for cash to use as a rental. One thing that the cash buyer will have over any financing deal is that the buyer can close fast, usually in 7-10 days.
Traditional buyers putting 20% down with conventional financing can be just as strong as another buyer offering cash if the offer is presented well and positioned properly. For instance, if you as a buyer have a feeling that there might be a cash offer on the table then that is not the time to be cheap and try to get a deal. If you love the home you’ll want to use the tools we share with you today to get your offer accepted and move-into that new home!
What can I do to compete with a cash offer if I cannot to buy a home with all cash?
Some questions to ask yourself;
How’s my credit – Not having good credit when you’re buying a home is like getting in your car to take a trip and not having any gas, it just doesn’t make sense. Before you start the journey of looking to buy a home make sure you’ve spoken to a lender, they’ve qualified you and you’re ready to purchase.
Tip: Getting an underwritten approval versus a pre-qualification will greatly assist you when making an offer. Additionally, having a pre-buying discussion with your lender to let them know you want to close on a home asap after an offer is accepted will set some proper expectations early-on. Good lenders will take this and complete certain items early to shorten the escrow time and shorter escrows is another way you can win against an all cash offer.
How much are you putting down – Buyers can purchase a home with VA financing with no money down, FHA with 3.5% down and conventional with as little as 5% down. In addition, there are many other types of loans available which can be further researched on Realtor.com. This article is not about how to get into a home with as little down as possible but if that topic interests you feel free to check out our article about Buying a Home With a Low Down Payment. When sellers think of traditional conventional financing they think of buyers putting at least 20% down, buyers competing with all cash offers will need to put at least that amount down to compete with an all cash offer.
How’s your job – Do you work in a stable field, how long have you been employed at your job? Is the market volatile for your type of work? If your answers are of positive nature to these items then these are some of the things you’ll want to point out to your agent so they can communicate that to the other representing agent.
Do you have money in the bank in addition to your down payment – This shows strength to a seller but only if the buyer is not putting everything they got down to purchase the home.
How’s your debt – Why would a seller care about my debt? Technically they don’t but your lender does, it’s called a debt-to-income ratio or DTI. If you’re on the fence of qualifying or not qualifying because you have a high DTI then what you purchase, even groceries on a credit card while your in escrow could make your deal fall apart and then the seller will care a great deal.
Buyers using financing competing against cash offers need to be transparent. Painting a picture of the 5 items above may be just what a buyer using financing needs in order to tilt the odds in your favor when competing with cash offers. In order to present this info you as the buyer will need to write a letter or resume if you will. You’ll want to write a little bio about yourself stating your FICO scores, the amount you’re putting down to purchase the home, employment history and stability of your employment covering the past 5 years, what your DTI ratio is and lastly a copy of your bank statement showing how much cash you have in the bank. If you do include your bank statement please remember to remove or black out all account numbers and routing numbers. Sometimes listing agents won’t show letters of this nature to their clients because unless it directly affects the offer it’s just unneeded drama. However, you as the buyer can force the listing agents hand and ensure the letter is presented by telling your agent that you want this presented by them (your agent) in person to the sellers. In California we have a real estate form called a Text Overflow and you can use that form as well to write your letter. Best part is that on the Text Overflow form it requires buyer and seller signatures so you can be ensured it was actually presented.
The combination of using the above approach and not being cheap to try and get a deal on an offer your competing against cash on will greatly increase your odds of getting your offer accepted.
Two more points to consider when buying a home and competing against cash offers;
Shorten any contingency deadlines – When writing an offer a buyer usually has contingency periods which allow them to conduct inspections, finalize the loan, confirm appraised value, etc. In California there are three standard contingency deadlines; 1. Inspection Contingency which is 17 days, and 2. Appraisal Contingency which is 17 days, and 3. Loan Contingency which is 21 days. All of these contingency dates can be further negotiated with shortening the time or lengthening the times. For instance, if a buyer knows they aren’t going to need 17 days to do their due diligence inspections why ask for 17 days? Buyers using financing and competing against other cash buyers can shorten their contingency dates which will make their offer more appealing to the seller. If you have a good real estate agent that’s on-the-ball and has vendors available to them for any necessary inspections you’d like to complete then you probably will be able to complete your inspections within 7 days.
Offer list price or more – Cash buyers will almost always offer less because they know their deal is a sure thing. This is an area you can capitalize on when writing your offer, make your offer for more money than the cash offer or if you don’t know what the cash offer is at least offer what the list price is. If this is the home you’re planning to live in for many years then the extra $10 or $20 dollars per month probably shouldn’t make any difference.