Thursday, November 7, 2013

Submitting a Cash Offer with Financing

When submitting an offer to buy any type of Real Estate, an all cash offer shows the seller that they are entertaining a serious bidder.  In submitting a cash offer, the bidder demonstrates that they are willing to forfeit the earnest money (deposit) if they are unable to close the deal by the date provided in the contract.  With the earnest money at stake, this eliminates some of the uncertainties in the early stages of the transaction.  As of July 2013, 40% of the residential deals that closed were all cash offers according to Realty Trac.  If you are a buyer looking to finance your purchase, there is a strategy that you can take to insure that you are competitive in the bidding process.  The strategy does come with risk, but will show that you are serious about closing the deal.

It is common for residential real estate contracts to contain a financing contingency.  This contingency provides the seller with a date that a buyer must submit a mortgage or financing commitment by.  For uniform residential real estate contracts, the common period given to submit a commitment is 30 days.  If a commitment is not obtained from the lender by the date provided, the earnest money is refunded and the contract is deemed void.  By removing the financing contingency, it will demonstrates that you are willing to forfeit your earnest money if you cannot close by the date set forth in the contract.  For a qualified buyer this does still entail minor risk, but if done properly it will aid in the validity of your offer and potentially result in a successful acquisition.

Timing and due diligence are critical to successfully close on an all cash deal with financing.  First, you need to assemble your team of experts.  Find a seasoned real estate agent, mortgage broker and attorney who are willing to work closely together.  Inform them of your objective and make sure they have no reservations.  All will need to be harmonious, punctual and efficient to get deal the done.  Provide your mortgage broker will all the documentation needed for underwriting and have them provide a pre approval with the maximum mortgage amount that you qualify.  Make sure they take all the necessary steps to insure that you have zero issues with obtaining a mortgage.  Next, indentify a property and do your own research and investigation to discover any obvious problems.  Your real estate broker and attorney will aid in this due diligence.  Finally, discuss with your team how quickly they believe the deal can get done and set a reasonable closing date.  Although you have planned strategically to submit this offer, still allow some extra time for possible complications.  All the above steps will not guarantee that the offer is accepted, but will remove the uncertainty of the offer being contingent on financing.

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