12/13/2017

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Cash vs Home Loans

Buyers with all cash have a distinct advantage over buyers who have to qualify for a home loan.

When most people buy homes or other real estate, they have to get a loan from a bank or mortgage company because they don't have the resources to pay cash. Although real estate in most areas of the country has taken a dramatic drop in value, you will not find many homes that are listed under $100,000, and if you do, most people are still unable to come up with that type of money in all cash.

In today's real estate market, many buyers who have to get loans to make their purchases are finding themselves competing with investors who are sealing the deal by making all cash offers. And with most properties being put on the market as foreclosures or short sales, the majority of sellers want to close escrow as soon as possible. This makes cash offers more attractive than those that require mortgage financing.

Buyers who are qualifying for loans are finding themselves having to offer more and proving up front that they can qualify. This is why it is imperative that a borrower gets pre-approved before getting into the real estate market and making offers or property.

  • It is important to understand that even if you are pre-approved and make a full priced offer, someone with cash can make a lower offer and may still win the bid.

Why? Because many sellers don't want to get tied up in a sale that is contingent on a buyer getting a loan approved because in many real estate transactions, time is of the essence. If the buyers loan is not approved, it will cost time and money, especially if the property is in foreclosure or if a bank wants to get the property off their books in a hurry.

There are several things that could go wrong for a buyer during the loan underwriting process.

  • The buyers may get laid off before they get written loan approval.
  • Something may come up on the buyer's credit that didn't show up at first.
  • Interest rates can go up making the buyer's qualifications inadequate.
  • Child support, alimony, and student loans have derailed many loan approvals.

Banks and private sellers are aware that this may happen so they may decide to go with cash instead of an offer that is based on the buyer getting financed. An all cash offer means that there is no waiting to see if the buyer is approved, which may take anywhere from 25 to 60 days or longer.

This may seem unfair to borrowers who have the income and the good credit to qualify, but cash is king. A cash offer means not having to wait for a lender's written approval on a buyer's loan.

About the author

John M. Roberts is the owner of John Roberts Realty located in Rancho Belago, California. You may contact him at jrobertsrealty@yahoo.com.

 

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