Mary, Home Buyer in South San Francisco,...

Is it better to offer all cash sale or take out a mortgage?

Asked by Mary, South San Francisco, CA Tue Jul 15, 2008

We're looking to purchase either a foreclosed property or short sale. Should I go for a deep discount going with all cash transaction or should I accept financing through the lender (seller in this case). My FICO score is 790 and my income is in the $200K.

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I think if you really want to know beyond the very obvious of getting a little discount on price of the home if you pay cash, you should check with a tax accountant and/ro financial planner on the benefit or drawback of paying all cash verse taking out a mortgage.

Taking out mortgage will allow you to write off the interest and save the cash for investment purposes. Depending on your tax bracket and investment vehicle, one might be more beneficial for you than the other. That will entirely be up to your situation and goal.

1 vote Thank Flag Link Wed Jul 23, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
Mary, if your offer and another buyer's offer is about the same your offer would most likely be more appealing to the bank if you are offering all cash.
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1 vote Thank Flag Link Wed Jul 16, 2008
I wrote an offer with my buyer as an all cash buyer on a reo listing and it was accepted now he wants to get a loan before clsoing what is the process is this going to be a problem?

Monica ,CA
0 votes Thank Flag Link Tue Oct 28, 2008
If you have the resources, you can make a cash offer, show proof of funds, but still take a mortgage, if you choose to do so. I had one developer tell me that it was an all cash deal. And it was: 100% the bank's cash!!
0 votes Thank Flag Link Thu Jul 24, 2008
I have sold both REO and preforeclosure homes. It is all depends on the properties. There is one REO bank owned home for sale in Santa Clara with 46 offers in 5 days. It was sold to an all cashed buyer.
If it is a very hot property...YES! You use all cash then you will have a better chance to get it. I do keep track of REO and bank own homes.
0 votes Thank Flag Link Wed Jul 23, 2008
First of all...apologies for the answer below....that was for anotther ended up here...and system would not allow me to delete.

I sell a lot of bank owned and short sale homes.....banks want market value...or very close to it. An all cash transaction does not necessarily mean you'll get a huge discount. It comes down to the bottom line.
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0 votes Thank Flag Link Thu Jul 17, 2008
The Hagley G…, Real Estate Pro in Pleasanton, CA
I would pay cash to get the deep discount and then refi to pull some or all cash back out.
0 votes Thank Flag Link Wed Jul 16, 2008
Paying cash or taking out a mortgage depends on the specific situation. If the property is bank owned and there are other offers you might want to pay cash because it would make your offer stronger and you could close sooner, both important from the banks position. If there are no other offers then it would depend on your situation and how much of your money you wanted to have tied up in the house. In this instance you would just need to make you offer strong enough to show the bank your had the ability and funds to close the transaction. Each situation is different and you need to talk with your agent to determine how to structure your offer in the specific situation to make it the strongest and most appealing to the sellers, while still maximizing you own postion.
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0 votes Thank Flag Link Wed Jul 16, 2008
I would pay all cash to get the discount and then refi to pull cash out.
0 votes Thank Flag Link Wed Jul 16, 2008
I would pay all cash to get the discount and then refinance to pull some or all of your cash back out.
0 votes Thank Flag Link Wed Jul 16, 2008
Home Buyer: The answer is always in the details — which we do not have. So, I will make some assumptions: First you have identified a home you want to purchase. The transaction will be a short sale or foreclosure (that is a big difference when it comes to negotiation strategy with a bank). You could pay cash or, if necessary, finance the sale. After all, you could just payoff the loan as soon as the transaction closes. The only problem would be State Property taxes, commissions, title and Escrow costs. You might have to wait about 2.5 years to break even.

If the home has already reached the point of foreclosure (complete) and the bank still has the for sale sign out, CASH might be perceived as the better deal for the bank and thus might consider a deeper discount. No guarantees. Seems reasonable. But, the same argument could be made with a short sale. The bank wants two things: (1) Their remaining investment and (2) OUT from under the house. The faster the better. They would probably be out much more if the home went into foreclosure. But, you also then have the seller involved to add a little anxiety and another negotiation dimension. And if the bank thought they could do better financing than accepting a full cash offer (interesting), the same might hold true.

Now having said the above, buying foreclosed homes or pursuing short sales can prove to be time consuming, frustrating with less than a warm and fuzzy feeling when it is all over. There are some liability issues here because of new laws designed to protect the public facing either of these issues. Personally, I have chosen NOT to work clients who are involved in such issues. At my stage of life, this arduous process is not worth the pain and suffering, time commitment and the potential liability that one could assume under Distressed Property Laws (currently the case in the state of Washington). There always seems to be unexpected baggage that accompanies efforts with rewards that seem “to be to good to be true”. Look at the mess we are currently in.

0 votes Thank Flag Link Tue Jul 15, 2008
What is better for you and for the seller? (May not be the same thing.) Private seller may prefer to finance and get more $$ in long run - or may need cash now & prefer discount and close. For you, it all depends on what kind of discount you mean (5%, 10%, 50%?) and whether you'd prefer that money to all be in the house.
0 votes Thank Flag Link Tue Jul 15, 2008
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