all cash offer for the house - what will happen if I am trying to get a loan later?

Asked by buyer, California Mon Jan 10, 2011

I was told all cash would make my offer strongest . But don't I have to wait for 6months minimum to get a home loan after I move in? Is it true if I do that I will not be getting the best interest rate?

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13
, ,
Tue Jan 11, 2011
What if you can't get the property and/or yourself approved for a loan after you've just put all your cash into it?

I'd be very wary about the expectation of pulling your cash back out. The same lenders that are promising you "no problems" in refinancing the property are probably the same ones that put clients into 3/1 ARMs with Interest Only payments telling the client "no problem, you can just refinance when the teaser period is over."

We can quote guidelines all day long but there's no way any of us can tell YOU that the property you purchase for cash will be successfully refinanced after the close of escrow.

I'd only pay cash if I was able to afford the possibility I can't get my money back out.
1 vote
Barry Shapiro, Agent, Camarillo, CA
Tue Jan 11, 2011
Hello BUYER,
Reading over you post, I feel you need to do more research and weigh out the options that best fit your needs.

1) If you pay ALL CASH you CAN get a BETTER PRICE if it's an REO and/or if the home needs repairs and cannot be financed due to it's condition. So, yes -- leverage the ALL CASH to save you money up front and get a screaming deal!
2) If it's a regular equity seller, and they will not give you a sufficient discount on the purchase -- since they are in no hurry to close -- then the all cash won't be a factor. Some sellers want to hold out for top dollar, so your leverage is reduced in this scenario.
3) If you do pay all cash and try to refi- later, yes, there are costs and the rate will be slightly higher. CAUTION: Ask several lenders 'how much' you can pull out on an all-cash refi- --- it used to be only 70-75%, which means 25-30% of your cash will need to stay invested (it may be less nowadays). THESE added costs and considerations can still work for you if you are able to leverage the cash up front to save $$$$ when you BUY the property.
4) Another often times ignored consideration is this: If you can save $20-30K off the purchase price of the home, you will be rewarded EVERY MONTH by paying lower property taxes (when compared to a higher purchase price). This adds up over the course of a 30-year mortgage -- and the property taxes continue forever! Property taxes are initially based on your purchase price ( x 1.25% in Ventura County)
5) Do some intense research and you may discover that interest rates may tend to remain low and even go lower in 2011. None of us have a crystal ball. If rates do go up considerably, then home prices will go down reciprocally -- as the buying power of the new homeowner is a direct factor of rates and cost.

Good luck in your home quest!
Web Reference:  http://www.teamVConline.com
1 vote
Dan Tabit, Agent, Issaquah, WA
Tue Jan 11, 2011
Buyer,
If you write the offer for cash, and have the cash to back it up, you can still submit for financing. Should the financing fall apart you are stuck paying cash. Sellers only care where your money comes from if there is a chance it may not show up on time. As long as you are prepared to wire funds at the last minute if necessary, write the cash offer and if accepted arrange financing.
The only way this doesn't work is if as part of your cash offer you intend to close before your loan is approved, in which case you can still finance as a cash out deal. The terms aren't quite as good, but still very competitive as compared to where we may be later.
1 vote
Adrian Hunti…, Agent, SAN FRANCISCO, CA
Tue Jan 11, 2011
I have to give Debbie credit. The reality is that all purchase transactions are cash. You either wire your cash, or your lender's cash, when the loan funds. Cash is only King, because you can close quicker,and there isn't an appraisal contingency. Great answer Debbie!
1 vote
Bonnie Sterl…, Agent, Simi Valley, CA
Mon Jan 10, 2011
Each lender is different but there is usually a preference to lend at purchase, loan officers have management pressure to do more purchases than refi's, what you describe will not be considered a purchase loan. Additionally, your percent cash out, from what I hear from lenders I work with, will not at the same percent of ltv, but lower than a purchase. Also, rates are typically slightly better at purchase. So, in all the foreclosures I have helped people purchase most use financing and have gotten decent values. Yes, plenty have lost out to cash buyers but it all eventually comes together. Keep at it, don't get discouraged.
1 vote
buyer, , California
Thu Jan 13, 2011
Thank you Barry!
(And every one)
0 votes
Barry Shapiro, Agent, Camarillo, CA
Wed Jan 12, 2011
Buyer,
In response to your excellent question:
.
[[ Barry ~
How about repair needed short sale ? Will the buyer still get a better price if the offer is all cash?
Or discount only apply for the REO ?
If 2 offers come in and 1 is all cash and the other conventional loan and the All Cash offer is slightly lower .
Will All cash offer still win ? Will the bank ( for short sale home) still prefer All Cash and less money ? ]]
. .
a) In a short sale purchase scenario, all cash may or may not have an advantage. You see, typically, the listing agent will only submit ONE offer at a time. If we submit more, it confuses the seller's banks. So, we only work with one offer at a time. If several offers come in simultaneously (maybe it's a new listing), usually the SELLER will decide to accept the all-cash (with fiduciary guidance from their agent), so fewer problems will arise later on with Buyer financing issues. The seller decides first, and then that offer goes off to the short sale Bank(s).
b) However, from a Short Sale lender's perspective, the LOSS MITIGATION department is looking to NET the highest possible dollar, and will choose a higher FHA offer, even with paying the Buyer's closing costs, IF the NET will be greater. Once it becomes an REO (real estate owned) the Banks want the asset sold ASAP so cash is king.
c) In order to get your (lower) cash offer to work in a short sale with needed REPAIRS, get a few estimates on what it will cost to complete these repairs, and submit this info with your offer -- be sure the seller initials this paperwork, and create an Addendum to the contract.
d) The exception to the REPAIRS question is when financing is not obtainable at all, since the property is not in lendable condition (incomplete construction projects, major cracked slab issue, missing systems of the home, etc.). In a given marketplace, there are many "must be all cash" short sales due to property condition, which makes finding a buyer difficult at best. Most will end up as foreclosures, or purchased with all cash at the trustee's sale. Be sure you know what you are doing before buying a foreclosure (with all cash) at the courthouse steps!
0 votes
buyer, , California
Tue Jan 11, 2011
Barry,

".ALL CASH you CAN get a BETTER PRICE if it's an REO and/or if the home needs repairs...."

How about repair needed short sale ? Will the buyer still get a better price if the offer is all cash?
Or discount only apply for the REO ?
If 2 offers come in and 1 is all cash and the other conventional loan and the All Cash offer is slightly lower .
Will All cash offer still win ? Will the bank ( for short sale home) still prefer All Cash and less money?
0 votes
Scott Godzyk, Agent, Manchester, NH
Tue Jan 11, 2011
Different lenders have different requirement for refinancing. Some lender swill refinance before the 6 month seasoning as long as there is no cash out. FHA and similar type loans have a seasoning. Simply check with soem local and trusted lenders. I received several offers on my bank owne dproperties that are cash offers and the buyers close using bank money, there just is not any contingincies on their offer and their bank can work fast enough to close within the 30 days the bank requires.
0 votes
Douglas Katz, , Chicago, IL
Tue Jan 11, 2011
The 6 months to which you refer is called seasoning and it is a requirement. The subsequent loan that you take out will be considered cash-out, which simply means that you are monetizing equity in the home. This can bear a higher rate under certain circumstances. You need to talk to a lender to analyze your scenio to get better specifics.
Web Reference:  http://www.bankerdoug.com
0 votes
Jim McCowan, Agent, Arlington, VA
Tue Jan 11, 2011
If you have the cash to make the offer, why not go ahead and start the loan process now? In our contract, the buyer has the right to substitute "alternative financing" as long as it doesn't delay closing or cost the seller anything.
0 votes
Dp2, , Virginia
Tue Jan 11, 2011
Nice answer Adrian. :)

You don't necessarily have to wait any amount of time to pull part of your cash back out of the deal. How you do it really depends upon what you plan to do with the property and the money. If this property is an income property that you intend to flip or hold, then you have several options (like getting a loan up to 80% LTV; using your equity as cross-collateral; selling your property with creative financing, and selling the note; equity swap; etc). Yet, if this property is a second home, then you could get that 80% loan or use your equity as cross-collateral.

Your interest rate will depend upon the loan underwriter's perception of risk in this transaction.
0 votes
Debra (Debbi…, Agent, Livingston, NJ
Mon Jan 10, 2011
As a solution to your question.........If you have the cash to back up your offer, and you're planning to "refinance" after the closing, why not just write your offer and waive the mortgage contingency ? You can still get a mortgage, but the sale won't be contingent on it .
Your offer will still be "strong" without the contingency, which should make the sellers happy.
0 votes
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