In a competitive housing market, buyers who can pay cash may have an advantage. Cash offer financing is a way for a prospective buyer to make a cash offer on a house, even if the buyer doesn’t have that amount of money in the bank.
A cash offer financing company backs a buyer who wants to make a cash offer. If the seller accepts the bid, the company buys the house, and then the buyer gets a mortgage to repay the company.
How Does the Process Work?
If you want to work with a cash offer financing company, you will have to get preapproved for a mortgage, either through that company or through a different lender. The cash offer financing company will decide how much it’s willing to give a seller on your behalf so you can buy a house.
You might be able to select your own buyer’s agent to help you find a home, or you might have to work with an agent chosen by the company. Once you find a house that you’d like to buy, you will submit a cash offer, make an earnest money deposit, get a home inspection and appraisal, and sign a contract.
If everything goes smoothly, the cash offer financing company will buy the house and take ownership. Then you will get a mortgage to buy the house from the company. If there is a gap between the date when the cash offer financing company buys the house and the date when your mortgage closes, the company might charge you rent, based on local going rates. You might also have to pay a buyer’s agent fee, as well as origination fees and interest (if you get a mortgage through the same company).
Should You Use Cash Offer Financing?
If you’re competing for a house against another buyer, working with a cash offer financing company might sway things in your favor. A cash buyer is a sure bet, but a buyer who needs to get a mortgage is riskier. If the buyer doesn’t get approved for a loan, a potential sale can fall through.
A seller may be more inclined to accept a cash bid from you, even if the amount is less than another buyer offered, and may be willing to make repairs at your request. You also might also be able to move in faster if you work with a cash offer financing company than you could if you pursued a traditional mortgage.
You might have to work with an agent chosen by the cash offer financing company or get a mortgage through that company, rather than choose your own agent and lender. There might not be any cash offer financing companies serving the area where you want to buy a house.
If you’re interested in cash offer financing, research companies that serve buyers in your area. Learn about the fees involved and compare those terms with those that other lenders offer.
