• Erika Gilmore

MORTGAGE BAD, CASH GOOD

Who can pay cash for a house anyway?



The title may be a little harsh. A more realistic but less catchy title would be "Mortgage Good, Cash Better." I recently had to break the news to a client that her over ask price offer was beat out by an all cash offer. It sure didn't make sense to her. Let me explain. There is nothing wrong with an offer contingent on mortgage financing. In fact, that is how most people purchase their homes.. using lender financing. However, once in a while, you'll compete with a buyer who has cash in the bank to hand over to the seller. In the minds of many sellers, this hunk of cash is a tangible benefit. Primarily because they don't have to deal with a third party lender.


When lenders get involved, they have a lot of pesky requirements by which a buyer must abide and a home must meet. For example, the buyer must have a stable job and adequate income to pay the mortgage, taxes and insurance every month for the next 30 years. This important information probably wasn't adequately verified by a lender prior to a buyer submitting an offer. A buyer may have a pre approval letter, but that does not mean the buyer has guaranteed funds. The work of collecting employment documents and tax returns doesn't usually start until an offer is accepted. This could lead to the deal "falling through" if a lender discovers a financial hiccup somewhere in the buyers past.


On the other side of the spectrum, a lender will require an appraisal on the home before it will guarantee financing. If that appraisal doesn't match or exceed the purchase price, the lender may walk. From personal experience, I know that can be disastrous. If a buyer can't get money, the deal can't close, and the seller must start all over again.


So to sum it all up, it's not that the mortgage is bad, but anytime a buyer can remove a contingency from an offer, the offer looks stronger in the eyes of the seller. Don't be discouraged if you need lender financing. The more homework you do with a lender before submitting the offer, and the more clearly your agent can convey to a listing agent that there will be no problem with the financing, the stronger you make your offer, and the more likely that seller will accept.

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