How Some Lenders are Helping Homebuyers Make Cash Offers
If you are worried about losing out to all-cash buyers when you make an offer for a new home, there is new hope.
Several legitimate start-up companies are starting to help ordinary homebuyers compete with cash-flush buyers and deep pocketed investors - even if you need financing to make the purchase.
These lenders are using ingenious strategies to help you make a cash offer so you can snag the home you want, whether it’s a primary residence or a vacation property. Some companies will give you a short-term loan, while others actually purchase the home of your dreams, and then sell it to you after you sell your house.
Keep in mind that you must meet qualifications similar to qualifying for a mortgage to be accepted by these many of these lenders. They are likely to look at factors like your income, your credit history, tax returns, bank statements and the equity in your existing home.
Why Sellers Love a Cash Offer
Real estate professionals know that an all-cash offer is the holy grail in real estate. According to the National Association of Realtors, cash offers are almost four times more likely to be accepted by the seller, and that number is climbing.
- There is no mortgage or financing of any type. Without the need to apply for financing, there is less risk that the deal will fall through.
- The homebuying process is much faster. When a buyer applies for a mortgage, it can take 30 to 60 days just for the underwriting process.
- You will not need an appraisal. Lenders look at the appraisal to make sure your offer reflects the market value of the home. But in a hot market, you might want to make an offer that is above market value to beat the competition and secure the property.
- Home inspections are not required. No house is perfect, and sellers are happy to close the deal without flaws revealed by a home inspection. Of course, to protect yourself, you may want to get one anyway – as well as an appraisal.
So is there any hope if you want to make a cash offer, but you need financing? The answer is yes, with these new start-up lender programs – if you qualify.
An Opportunity to Compete
It’s all about supply and demand, and in today’s real estate market there is less supply and more demand, putting sellers in the driver’s seat. These new companies help you make a cash offer so you can compete and hopefully win a bidding war for the home of your dreams in a hot sellers’ market.
Here’s how it works.
With many of these lenders you apply for a mortgage and the company issues a pre-approval. The lender then purchases the home you choose in an all-cash deal. You then buy the home from the company once your mortgage closes.
Companies That Help You Make a Cash Offer
Better is an online mortgage lender that offers a Better Cash Offer program to help you make a cash offer. You deal with an in-house real estate agent and apply for a mortgage through the company. Once approved, you can make a cash offer on a home.
Better does not charge you a transaction fee unless you use another lender for the mortgage, in which case you pay a transaction fee of 2.5% of the selling price. Better currently operates in 17 states and Washington, DC.
Ribbon, founded in 2017, has an all-cash offer program with a fee ranging from 1% to 3.25% depending on how soon you obtain your mortgage. If your mortgage doesn’t come through in time, Ribbon will pay cash to purchase the home and sell it to you within 180 days.
You can make an offer that waives financing and appraisal contingencies to make the offer more attractive to the seller. Unlike other companies, Ribbon does not offer long-term mortgages. Ribbon currently operates in hot housing markets in the southeast and the Midwest, and the company plans to announce its expansion into other states.
Flyhomes mortgage company and brokerage firm caters to first-time homebuyers. The company will buy the house you choose and sell it to you when your loan closes.
If you want to back out of the deal, Flyhomes will buy the house, sell it and return your earnest money. In addition to the mortgage amount, Flyhomes also subsidizes closing costs. The program is funded through commissions paid to the broker by the Flyhomes buyer. Flyhomes is currently based on the west coast.
The Orchard all-cash program which is also designed for first-time homebuyers has no fee. The company is expanding its service area and is currently available in several states on the east coast along with Washington, DC.
With Homeward, you can use any real estate agent you want. The Homeward “buy with cash” service charges a fee of 1.9% of the price of the home. If you use the company as your mortgage lender, you will receive a discount that can reduce the fee to zero. The company operates in several states on the east and west coast.
- Cash-Backed Offers
Companies such as Knock and Opendoor have a different model to help homebuyers. Their “cash-backed offers” guarantee that they will fund your loan with cash when you close on the house, even if your mortgage hasn’t cleared yet.
Keep in mind that companies that have all-cash and cash-backed offer programs operate in limited markets right now, but as the hot real estate market continues, many are looking to expand into additional areas. In addition, you should understand that these lenders will still require appraisals that true cash offers to not require. This will cause uncertainty for the seller, so you will need to consider eliminating the appraisal contingency by offering to cover any gap in appraisal. Discuss with your lender to make sure you will have the additional cash at closing to cover any gap.
Local CNY Companies & Lenders Helping Buyers Compete with Cash Offers
Homestead Funding Corporation has a local branch offering the HomeXpress program that provides a closing guarantee. According to the Homestead Funding Corp website, you can get pre-approved with the HomeXpress program before you even make an offer and get a closing guarantee.
How Buyers Benefit from this program:
- Present the strongest offer possible with your Certificate of Loan Guarantee from Homestead. This assures sellers your financing is secured.
- Provide all documents upfront and your loan is pre-approved
How Sellers Benefit from this program:
- The purchase will close on or before the contract date or receive $5,000! (there are terms and conditions that apply, so speak to your Homestead Lender for more information).
- Confidence that financing is ready with a fully approved buyer.
For more information, visit Chris Madden (homesteadfunding.com)
There are Risks associated with these programs:
Risks can include (but not limited to):
- default by the seller in the sale to the lender
- additional cash due at buyers’ closing due to an appraisal gap (for offers made without an appraisal contingency)
- risk of loss of buyers' earnest money deposit under certain circumstances.
Speak to your lender for more detailed information and to understand the risks involved.
Making an All-Cash Offer
Count on Kelli Ide with Michael DeRosa Exchange to help you find a lender with an all-cash offer program and help you get the Finger Lakes residence or vacation home of your dreams. As a Licensed Associate Real Estate Broker, she can help you make smart decisions about buying or selling real estate.
Kelli Ide offers a unique, concierge-style approach to real estate, including staging, photo styling and market preparation services exclusively for clients to give them an edge over the competition. For further information about buying or selling a home in the Finger Lakes, visit kelliide.com.