When most people want to buy a home, they speak to a mortgage lender about financing. After all, with median existing home prices in the U.S. at $209,700 (5.6 percent higher than they were 12 months ago), it would be decidedly difficult for the majority of homebuyers to access that much cash. Some, however, are able to do so—24 percent according to data from the National Association of Realtors. Many investors are among them. In fact, 63 percent of investors purchasing residential real estate properties paid in cash in September.
While all-cash offers can make the market a bit more challenging for consumers planning to use financing, they don’t make buying a home with a mortgage impossible. In fact, there are several tactics you can use to beat the all-cash offers against which you may be competing.
Secure mortgage pre-approval before making an offer.
While you may want to obtain mortgage pre-qualification before you even begin looking for new home, you’ll need more than that—a full pre-approval—when making an offer against other homebuyers. While pre-qualification requires nothing more than stating your income, assets and debts so your mortgage lender can estimate the amount for which you should qualify, a pre-approval involves a complete mortgage application, financial documentation and credit check. Once it’s complete, you will have a better idea of the interest rate you’ll receive and—even better—you’ll receive a written conditional offer for an exact loan amount. This makes you much more attractive to home sellers.
Waive or shorten the mortgage contingency.
Most offers include a contingency wherein the seller will refund your earnest money if you are unable to secure financing within a set period. While waiving this contingency can be risky if you’re not absolutely certain you’ll qualify for a loan—you’ll lose your deposit—it can make you more attractive to home sellers who stand to benefit. If you’re uncomfortable waiving the contingency altogether, offering a shorter contingency—say, seven rather than 30 days—is also an option.
Make a bigger down payment and finance less of the purchase price.
Some home sellers see a larger down payment as an indication that you are serious about purchasing their property. Additionally, the larger your down payment, the more likely you are to secure a mortgage (and you’ll get better terms as well). This can make your offer more attractive.
Make the seller’s needs a priority.
Perhaps you’d like to close and move in by the first of the month, but the seller’s new home won’t be ready until mid-month. Maybe the seller wants to take her window coverings (or other items that are usually included in the home sale) with her when she leaves. The more flexible you can be to meet the seller’s needs, the more attractive your offer on the home.
Appeal to the seller’s emotions.
Ask any real estate agent if emotions should be involved in the home selling process and they’ll say, “No.” However, it’s exceedingly difficult for homeowners to ignore the emotional attachment they have to their property when it’s time to move on—especially if they’ve lived there for decades. For this reason, it can be helpful to include a personal letter with your offer. Write about how much you love the home, complement them for taking such wonderful care of it, and explain why it is perfect for your family. Note: don’t elaborate on upgrades or changes you plan to make to the property.
Many sellers like all-cash offers, especially in a market where mortgages are more difficult to secure. But this does not mean you won’t be able to buy with a loan—especially if you employ one or more of the tactics outlined here. Contact your mortgage lender or real estate agent today if you’re ready to get started.
