Can You Buy a Home in a Competitive Market Without Cash?
You may have heard that in a competitive real estate market, you need to make an all-cash offer to purchase your dream home. Across the industry, the same refrain repeats incessantly: cash is king.
It’s true that having cash on hand improves your chances of having your offer accepted. According to home selling data collected by Redfin, a competitive all-cash offer improves your likelihood of success by a whopping 97%.
Further, cash offers are on the rise. According to the National Association of REALTORS, cash sales made up 23% of residential sales in October 2018, compared to 20% the prior year.
If you’re buying in a competitive housing market, the truth is that you’ll likely be competing with all-cash buyers in your home search.
But what if you don’t have all-cash, or simply prefer to mortgage your new home? There’s still hope for you! Here’s how you can compete with cash, even if you’re relying on home financing:
Understand why cash is king
First, it’s important to understand why cash rules the roost when it comes to home buying.
One big reason: it’s faster and more certain. Financing a home with a mortgage is not always a predictable process. Surprises can — and do — come up, potentially risking your ability to close on the home.
In fact, the number one problem for contracts with the delayed settlement? Issues related to obtaining financing. Financing woes account for 37% of delays. Meanwhile, a cash offer indicates to a seller that the deal will close quickly and with more certainty.
A pre-approval or pre-qualification can certainly help your case because it shows a seller you’re serious and ready to buy.
The problem? All pre-qualifications and pre-approvals are not created equal. Each lender has their own process, and frankly, some of these processes are more thorough than others.
When a seller receives a pre-qualification or pre-approval letter from a lender, it signals that they might need to wait up to 40 to 60 days for the sale to close.
That’s because the buyer’s financial data still needs to be verified and the loan needs to be underwritten. Simply put, these letters don’t carry much weight because they often rely on incomplete or self-reported information about credit scores and income.
Pre-qualifications and pre-approvals are just the first steps of many in the mortgage approval process.
Work with a lender that underwrites upfront
So, how can you get a leg up over the competition? Work with a lender that underwrites upfront. If you’re up against cash buyers, you’ll want your financial backing to be extra strong so you can stand out.
That may mean removing uncertainties from the equation by showing the seller you have the finances to back your offer, and you’re ready to move quickly.
Essentially a conditional approval that’s been fully underwritten carries a lot more weight than an unverified pre-qualification letter, and shows sellers you mean business and are a highly qualified buyer who’s ready to get to the closing table.
Write a letter to the seller:
Another tip for standing out among cash buyers? Write a buyer’s letter to the sellers introducing yourself.
Realtors say it’s best to keep these letters short and sweet, and compliment features you love about the home. (Don’t mention what areas you want to remodel because that might insult the seller!)
The idea here is that many people have emotional attachments to their homes, not to mention established friendships with their neighbors.
With that in mind, sellers want to know that buyers will be good stewards—something that could set you apart from an investor who has plans to move renters in and out, or simply wants to gut and renovate the entire home.
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