How to Make a Cash Offer on a House When You Don’t Have the Cash

The housing market continues to burn hot, making it difficult for a typical buyer to have their offer accepted by a seller with lots of potential buyers.

A buyer with an all-cash offer, however, can have a distinct advantage to secure a new home. In fact, all-cash offers were more than four times as likely to secure a deal than a non-cash offer in 2021, according to real estate website Redfin.

Not all buyers, however, have the cash on hand or financial liquidity to put in an all-cash offer. But there are still options to give homebuyers a potential advantage with their next offer. So what’s a cash-offer mortgage option, and can it work for you?

Cash-offer mortgage options

Traditionally, saving for a down payment and working with one of the best mortgage lenders you could find was the best way to get the new home you wanted. But in this red-hot housing market, a down payment and a mortgage may not help you against stiff competition.

Cash offers are more enticing for sellers because they’re less likely to run into delays or financial issues from the buyer. Sellers also may not have to deal with issues like contingencies on when a buyer’s old house will sell or how much the home will be appraised for by a mortgage lender.

But if you don’t have much cash on hand, there are still ways to have a “cash offer” that can entice a seller to choose you to buy their home.

Companies such as Better, Orchard, or Flyhomes offer buyers the ability to put in all-cash offers for homes to make their offers more appealing to sellers. These companies can give you different options depending on your particular needs. The company may buy your current home to give you the liquidity you need for the cash offer on your next home. Or the company may pay cash for a new home you want and then transfer ownership to you along with a more traditional mortgage through the company.

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But just like a traditional mortgage, a cash-offer mortgage option may have pros and cons. Here are some things to consider when deciding whether this may be a good way for you to lock up your next home.

Pros of cash-offer mortgage options

Cash is king in this very competitive housing market.

Sellers may pass on a potential buyer with a traditional mortgage because there may be issues during the financing process. Perhaps a buyer isn’t approved for the mortgage amount they need or the buyer may have to sell their home before they can close on the new house. Those issues aren’t necessarily a factor with an all-cash offer, which makes them more appealing for a seller to accept.

A cash-offer mortgage could make a potential buyer look similar to a typical all-cash buyer, which can give them an advantage in the competitive real estate market and help them secure the home they want.

Some cash-offer mortgage companies may also offer real estate services to help their clients sell their homes as well, making them an easy one-stop shop during the process.

You also may have to get pre-approval for a mortgage from a company giving you a cash-offer option. As with a pre-approval from a traditional mortgage lender, you will know how much mortgage money you have to spend and have the paperwork completed when you start searching for your next home.

Cons of cash-offer mortgage options

Being able to make an all-cash offer sounds great, but there are some disadvantages to using a cash-offer mortgage option for your next home purchase.

First, these mortgage options may require you to be pre-approved for your mortgage and may require additional documentation compared with a typical pre-approval process. You might want to be prepared with W-2s and other tax returns, and your current credit report and credit score. Any outstanding loans, such as a car loan, student loans, or credit cards, may be taken into consideration.

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As with any financial document, you should check the fine print. For example, the cash-offer process may include additional fees for the cash-offer loan or extra taxes.

There also may be a high interest rate on the loan you might have to pay back if your current home doesn’t sell quickly. You might have to use your current home as collateral for a cash-offer mortgage so that you can get cash to use for your new home. The cash that has been loaned to you for your cash-offer mortgage may carry a high interest rate. If you can’t quickly sell your existing home, you may have to pay a high percentage of interest on that loan.

Realtors who may be helping you to buy or sell your home as part of this process may also be a factor. Some cash-offer mortgage companies may require you to use one of their real estate brokers as part of the process instead of one you might find who knows your area well. And you may have to pay extra to fix up your home or stage it to comply with possible requests from the mortgage company.

How to make yourself an attractive buyer without cash

So what can you do if you decide not to take any of these cash-offer options? There are still ways to make yourself an attractive buyer.

• Get pre-approved for a mortgage and have a letter with the maximum amount you were approved for. Even if you can’t make a cash offer, a seller who knows you’ve been pre-approved can be assured that the deal will most likely go through.
• Increase your earnest deposit to show you are serious about wanting to buy the house. You may need a little extra cash to do this, but not as much as you would need if you were putting down an all-cash offer.
• You might also want to consider a higher bid for the home. Cash buyers sometimes expect a discount on the cost of the home because they’re bringing cash. You may be able to outmaneuver a cash buyer with a higher offer that will be covered by your pre-approved mortgage.
• You may want to waive contingencies, such as an inspection, in order to secure the purchase of a home. But be aware that contingencies are usually there to protect the buyer. You should seriously consider the pros and cons of waiving these options. If you feel uncomfortable not being able to put those contingencies in place, consider walking away from the purchase.
• Be available to respond to any counter-offer as soon as possible to buy a new home. It may mean carrying your phone with you everywhere or finding additional ways for your real estate agent to contact you if the seller responds. In a competitive market, waiting before you respond to the seller could put you in a bidding war or be the difference between getting the house and not getting it.

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Bottom line

There are ways to make your offer for a home more enticing, such as cash offers, and you do have options if this is the tactic you want to take. To get pre-approved for a mortgage, you’ll likely need extra documentation. There also may be some drawbacks to doing a cash-offer mortgage, so think about the pros and cons before you choose this option to buy a new home.