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Cash battle

Ask Our Broker With Peter G. Miller

By Peter G. Miller
CTW Features

Question: We’re in the market to buy a home, but feel outgunned by investors who can pay all cash. We’re Federal Housing Administration (FHA) borrowers who can put up 3.5 percent and no more. How can we compete?

Answer: Let’s start with the advantages of all-cash financing. First, the all-cash buyer does not have to worry about qualifying for a loan. There is no need to qualify. All the buyer needs is a checkbook and a hefty bank balance.

Second, because the buyer is not going through the lending system, there are no worries about lengthy settlement times. The purchaser has the money and can close the transaction as soon as the settlement agent is ready.

Third, while an all-cash buyer is not going through the mortgage process, he or she may still insist on an appraisal, home inspection and other requirements to assure that the property has a certain value and physical condition. All cash does not mean a purchase without conditions.

Now, alternatively, we have buyers with FHA financing, Veterans Affairs (VA) funding or conforming loans with 5 percent down and maybe even 3 percent down. Why would a seller prefer your offer?

There’s no assurance that you will be able to offer a winning bid. That’s the case with all property sales that involve multiple offers. However, you can be competitive. Here’s why:

At the end of the closing process, the owner gets a check. Whether that check is the product of all-cash financing or a mortgage makes no difference. But what about being dependent on financing? Won’t sellers see that as a negative? Some will, but you can bolster your case in several ways.

First, make sure you are pre-approved for financing. You don’t want to consider homes you can’t afford and the seller doesn’t want to bother with an offer, which may fail because of financing.

Second, as above, all cash offers routinely come with contingencies such as required appraisal values and a property inspection satisfactory to the buyer. You can require the same terms. You can also make an offer without any contingencies in an effort to beat out an all-cash offer, but this approach represents a huge amount of risk – one not generally recommended.

Third, the seller may not be interested in a quickie sale. Instead, the owner may want settlement further down the road so there’s time to pack, move, and line up replacement housing.

Lastly, owners may not like all-cash offers if they are simply low-price bids. The better deal for sellers is likely to be a market-based offer. If it takes a few weeks to settle, that’s fine if it means a bigger check at closing.

© CTW Features

Peter G. Miller is author of “The Common-Sense Mortgage,” (Kindle 2016). Have a question? Please write to peter@ctwfeatures.com.

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