When you need to obtain financing in order to purchase a home, you are at a disadvantage if there are cash buyers in the market. This does not mean that you cannot get the bid – you will have to work hard at it though. Before you start searching for houses, you need to get your financial information in order so that you can act fast when you find the home that you want.
The most important thing for you to remember is that you need to pre-approved, not just pre-qualified. If you go into a bid armed with just a pre-qualification, chances are you will lose the bid. A pre-qualification is an estimate of the amount of home that you can afford. It is not an approval of any sorts and will never have any impact on an underwriter’s decision. If you have a pre-approval, on the other hand, an underwriter goes through your file, reviews your loan application, pulls your credit and determines the amount of loan that you can afford. This can be done before you ever find a home, in order to allow you to make only serious bids that matter.
Remove as Many Contingencies as Possible
Contingencies are another reason that cash buyers typically win over those that finance their home. When you have to obtain a mortgage, you will have contingencies on the approval of your loan that include the price of the home, condition of the home and the supply of any financial documents that the underwriter may need. Before you even start shopping for a home, try to get rid of the financial document contingencies. This means getting the underwriter to give you a pre-approval that is almost clear; the only things that should remain are the price and condition of the home.
Provide a Higher Down Payment
If you have the financial ability to put down a larger down payment than may be necessary for your loan approval, do so. This will make you look better to the seller of the home that you want to purchase. Putting down 5 percent might not be enticing to a seller that also has a cash buyer knocking on his door. On the other hand, if you show that you are serious and are capable of putting 20 percent down, you might give the cash buyer a bidding war. Of course you should not do this if you cannot comfortably afford it and are not approved to do so by the lender.
Make an “As-Is” Offer
If you are willing to take the home in the condition that it is in and are comfortable that nothing will prohibit a proper appraisal, remove the contingency to have any defects repaired. This does not mean that you cannot have the contingency to have a home inspection completed and in the event that something is wrong with the structure of the home that you cannot back out. It means that you will not request repairs for missing shingles, broken doors or any cosmetic issues that can be easily fixed on your own.
The most important thing to remember when you are in a bidding war with any buyer, but especially a cash buyer, is to be diligent. Have all of your finances in order and check off everything possible on your checklist with the underwriter. The closer that you are to having a full approval on your loan, the more weight your bid will have with the seller. A cash buyer does not have to have the advantage over you, as long as you make it known that you want the home and are willing to work to get it.Click to See the Latest Mortgage Rates»