Did you lose a house to an all-cash offer? Here’s a little secret homebuyers need to know

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Homebuyers are doing all kinds of things to make their offers stand out in this supply-starved market, from removing contingencies to bidding way over the asking price. One tried-and-true technique for making a competitive offer on a house remains popular as well, and that’s the all-cash purchase.

Now here’s a little secret. Believe it or not, savvy homebuyers can essentially make a cash offer even if they’re planning to take out a mortgage. You just need to find the right lender to help you get everything in order.

What is an all-cash offer anyway?

First, the basics. A cash offer is (usually) exactly what it sounds like: It means the buyer plans to pay all-cash for the home she has put an offer on, and can prove she has the funds in the bank to do it. Cash offers usually mean a more streamlined process for both buyers and sellers, and many sellers prefer to take unfinanced cash when it’s an option.

Buyers who plan to take out a mortgage, however, represent more risks to the seller.

“They’re taking the house off the market because it’s now under contract, therefore they lose a potential two weeks if the buyer doesn’t get approved,” said Jaad Nicholas, senior mortgage banker at Ameris Bank, and vice chairman of the mortgage committee for the Asian Real Estate Association of America.

The less financing involved in a real estate deal, the more favorable a seller’s view of the offer will usually be, he added.

“What’s happening in this market is sellers are basically running the market because there are so many buyers and not enough homes to purchase. The sellers are starting to take the cash offers,” Nicholas said. “They’re taking those and they’re putting them at the top.”

How can you compete with cash if you still need a mortgage?

While it’s true that sellers often prefer all-cash offers, it doesn’t necessarily mean you can’t compete in this frenzied market even if you still need a mortgage.

“There are some ways you can use a loan and still be considered a cash offer,” Nicholas said. “The most common way, what we offer at Ameris Bank, is a decision-now approval.”

It’s not exactly the same as cash, but it’s almost as good because a decision-now approval, also sometimes called an underwritten preapproval or upfront underwriting, means the loan has already been funded and the lender verified that the remaining portion of the sale price is accounted for. That means the buyer can more comfortably remove financing contingencies from her offer without worrying about losing her earnest money deposit, because her mortgage is already secure.

Decision-now mortgages help streamline the closing process and can also make nontraditional homebuyers more attractive candidates in a sale.

“It takes someone who may have been risky and it turns them into a super-strong buyer. For example, I did one for a client who just graduated college and has only been working for a year,” Nicholas said. “It took someone who would have been an iffy client and turned them into someone almost as good as a cash buyer.”

Because not all lenders offer decision-now mortgage approvals, shopping around is even more important if you think it could be the right product for you.

Aside from Ameris Bank, many lenders offer upfront underwriting, but larger institutions like Chase or Wells Fargo tend to favor the traditional mortgage application process, because underwritten preapprovals can clog their already-busy pipelines. A mortgage broker should be able to help you find the right lender for whatever loan products you’re looking for.

Tips for buying a house in a seller’s market

If you’re ready to buy a house and are worried about the competition, there are a few strategies that could help you along the way.

First, Nicholas said, it’s a good idea to work with a trusted Realtor and mortgage lender who can make sure you’re getting the best deal.

“The number one piece of advice I would have is get preapproved with a trusted mortgage professional, and number two, make sure you’re partnered with the right buyer’s agent,” he said. “If they have the right team, they’ll get under contract quickly.”

You can also check out Bankrate’s guide to buying in a seller’s market. The top strategies include:

  • Being ready to move fast when you find a house you love
  • Going through the full underwriting process before you make your offer
  • Making sure your offer is aggressive enough to stand out — but not too expensive for you to afford

Tips for financing your home purchase

Whether you get a decision-now mortgage approval or go through a more traditional contingent loan application, the process is more or less the same.

Here are the 10 key steps to buying a house with a mortgage — and remember, in a competitive market, it’s a good idea to get your loan secured as early in the process as possible.

  1. Strengthen your credit
  2. Know what you can afford
  3. Build your savings
  4. Choose the right mortgage
  5. Find a mortgage lender
  6. Get preapproved for a loan
  7. Begin house hunting
  8. Submit your loan application
  9. Wait out the underwriting process
  10. Close on your new home

Bottom line

A competitive housing market means buyers need to be especially savvy and use whatever advantages they can to close the deal on their new homes. One way of doing that is to make an all-cash offer, which you can still do with a mortgage if it’s underwritten in advance.

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