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Homebuyer Resources
Delayed Financing for Cash Offers: Pros and Cons
It’s no mystery that an all-cash offer on a house is a huge advantage. In a highly competitive seller's market, a cash offer on a property can be the difference between getting your dream home or not. And in a buyer's market, a cash offer gives you extra leverage to negotiate on price or seller concessions. But most prospective homeowners aren't sitting on a giant stack of cash. Even if buyers do have the cash available, it may not be the best financial choice to tie it all up in a home purchase. This is where delayed financing begins to look like an attractive option. Delayed financing is a term you’ve probably heard before. So, what is it? And who can do it? We’ll unpack everything for you. What is delayed financing? Delayed financing is a way of buying a home with cash upfront and then, right after the purchase is complete, doing a cash-out refinance. In this case, you buy the house free and clear, and then take a loan out against the home afterwards in order to get back liquidity rather than keeping your cash tied up in your house. Essentially, delayed financing is a delayed mortgage. Homebuyers and investors get the advantage of being a cash buyer, then get a mortgage shortly afterward to get cash back out of the property. This avoids tying up cash in a house that could be used more productively elsewhere. Delayed financing exceptions and requirements There are certain eligibility requirements for homebuyers to take into consideration before using delayed financing. With traditional home equity financing, there is a requirement for the new homebuyers to be on the property title for at least six months. Delayed financing is an exception. The delayed financing exception allows homebuyers who pay cash upfront to apply for cash-out refinancing immediately. There are different delayed financing exceptions depending on Fannie Mae and Freddie Mac loans. And these can affect your cash-out refinancing. Researching these in advance and knowing your lender is important. When you choose a mortgage lender, ask questions about their loan processing time, documentation requirements, and their standards for a delayed financing cash-out refi loan. Some of the other qualifications you have to meet for delayed financing include: The purchase of the property has to be an arms-length transaction. The buyer must use cash to buy the property.The buyer must provide the source of the funds.If the cash used to make the initial purchase came from a HELOC on a different home, the proceeds from the delayed finance mortgage must be used to pay off that HELOC.The new loan amount cannot exceed the purchase price. Lastly, for delayed mortgages, homes also have to stay within a local loan limit based on location. For example, for single-family homes in most counties in Colorado, the loan cap was raised to $647,200 for 2022. But in Denver, the limit is $684,250 for a single-family home in 2022. Loans above these limits are considered "jumbo loans" and may not be eligible for delayed financing, depending on your lender. The Pros and Cons of Delayed Financing To recap, a delayed financing strategy requires cash upfront and has lots of special requirements. So, why would buyers want to do it? For older homebuyers looking to downsize and who have cash available, delayed financing could be a great option. Buyers who are downsizing typically have cash available from selling their more expensive house. Taking advantage of delayed financing means this homebuyer can act more quickly when buying their new, cheaper home with cash on-hand, because all-cash offers close faster and are more attractive to sellers. Then, this buyer can turn around and do a cash-out refinance immediately, under the delayed financing exception, to regain liquidity and take their time repaying the new loan. Similarly, for property investors, delayed financing keeps assets more liquid to support their real estate investment strategy. These types of buyers are in a category all of their own, usually with large sums of money allocated for buying and then flipping or renting houses. These are not your average homebuyers. That said, there are some advantages and drawbacks to consider when deciding if delayed financing is an option for you. Pros of delayed financing Gives buyers a competitive edge when buying a house with cash.Allows buyers to bundle closing costs and financing costs into the cash-out refinance.Helps buyers regain cash immediately instead of waiting 6+ months to refinance. Delayed financing may be a smart and strategic financial move if you have the money available to buy a house outright. However, not all homebuyers are sitting on this much cash. In order to take advantage of delayed financing, cash on-hand is a fundamental requirement. And one that disqualifies a lot of buyers. Cons of delayed financing Requires cash upfront to purchase a home. Requires that all qualifications (listed above) are met. These can vary by lender.Limits which lenders buyers can use depending on cash-out refinancing availability. Has loan limits for refi that cannot be exceeded. Requires leaving some equity in the home to avoid PMI.Allows only certain types of conventional and some jumbo loans. FHA and VA loans are not eligible.Comes with the risk of not closing the refi quickly or locking in the best rates, should rates rise by the time of the refi closing. . Comes with higher interest rates than a traditional mortage. If you are able to make an all-cash offer on a home but want to stay liquid, then a cash-out refinance with delayed financing could work. But there are calculated risks that come with this strategy that the average homebuyer is probably not willing to take. How to make an all-cash offer without delayed financing Delayed financing isn't the right option for most homebuyers. Whether it's the risk, the higher loan rates, or the upfront cash requirements, this type of delayed mortgage strategy attracts a small subset of buyers. Let’s say you’ve done your research and delayed financing just isn’t going to work for you. There is another option available for making cash offers on homes! At Accept.inc, we are the mortgage lender of choice for everyday Colorado homebuyers who want to make a cash offer on their next home. If you qualify for a mortgage, you can get Cash ApprovedTM. Once approved, you can make your next house offer backed by Accept.inc's proof of funds -- in other words, you're a cash buyer. But unlike with delayed financing, you'll already have the details of your Accept.inc loan, including your competitive mortgage rate, with no hidden fees. Once the closing process is completed, you begin paying back the loan just like a traditional mortgage. Accept.inc levels the playing field for any qualified homebuyer to compete with other cash buyers. All without needing upfront funds or complicated financing tricks. Now that you know the pros and cons of delayed financing, we think you'll agree that the Accept.inc alternative is superior in every way. Get Cash Approved today and start making cash offers without any uncertainty.
Olivia G | Dec 30, 2021
Homebuyer Resources
Should You Use an Escalation Clause in Your Denver House Offer?
Imagine it: you find your dream house in Denver. It’s absolutely perfect for your family...and about a dozen other families, too. Let the bidding war begin! Buyers looking to get an edge in the Denver real estate market often add an escalation clause to their offers, stating how much higher they will go in response to competing bids. Should you? Learn how an escalation clause in real estate works and if it’s right for your situation. What is an escalation clause in real estate? An escalation clause in a real estate contract spells out that you’re willing to raise the offer price in response to a higher, competing offer the seller might receive. The clause sets a specific amount above the competing offer that you would be willing to pay, up to a maximum limit. Here’s an example of how it works: you find the perfect home and submit an offer of $300,000. With your offer, you submit an escalation clause, setting the maximum limit of $325,000 for your final offer. The terms of the clause state you will escalate your bid $1,000 over the next highest offer (meaning someone who bids higher than your $300,000 offer), until the maximum escalation limit of $325,000 is reached. So if someone else bids $310,000, your escalation kicks in and transforms your offer into a $311,000 bid, and so on, until you hit $325,000, at which point your escalation stops. The idea is that by using an escalation clause, you might prevent another buyer from outbidding you in a situation where you'd be willing to pay a little more than your initial offer. The escalation clause lets you "escalate" automatically. But, don’t jump the gun on submitting one. According to realtor.com, escalation clauses “should only be used when the buyer is fairly confident that there will be multiple offers, or when the buyer expects to pay an increased price.” Is an escalation clause a good or bad idea? Whether an escalation clause is a good idea or bad idea depends on the market. In Denver, with the combination of low inventory and low interest rates, competition in the real estate market has been more intense than ever. Using an escalation clause might give you an edge; or, it might just be table stakes. On the other hand, an escalation clause would be a bad idea if you can’t cover the difference between your pre-qualified loan amount and the escalation price. Going back to your perfect home scenario: if you qualify for a loan of $300,000 — based on your financials and the assessment of the property’s value — and you choose to bid higher than that, you will be responsible for coming up with the escalation difference out-of-pocket. Also, some sellers choose not to accept offers with an escalation clause because they want you to submit your highest offer up front. How do you write an escalation clause? The best thing to do is talk to your real estate agent about whether escalating would help your offer; and if so, under what terms. According to realtor.com, an escalation clause should focus on the following: What is the original offer of purchase price?How much will that price escalate above any other competitive bid?What is the maximum amount that the purchase price can reach in case of multiple offers? It’s also a good idea to make sure your escalation clause includes language requiring documentation from the seller proving there was a higher offer. Without it, you might end up paying more for no reason. Have you considered making a cash offer? An escalation clause may or may not be the most effective tool for securing your new Denver home, depending on your goals and situation — however, making a cash offer might give you the big advantage you need. Cash sales are on the rise, according to the National Association of Realtors, whose August 2021 survey showed that cash sales accounted for 23% of existing-home sales. In a multi-offer situation, it's not necessarily the highest bid that wins. A real estate cash offer can be more attractive to the seller, giving you more leverage to make a competitive offer, winning at a lower price or getting more concessions. With Accept.inc, you can get Cash Approved™, and gain the power to make real cash offers at no additional cost. Accept.inc offers beat an average of nine offers in multi-offer situations, and data shows that Accept.inc. buyers save on average $13,000 in multi-offer situations, when compared to the highest offer. Learn how to gain the competitive advantage of an all-cash offer with Accept.inc. today!
Stella W | Dec 21, 2021
Homebuyer Resources
How to Win a Real Estate Bidding War
You found it! The listing for your dream home. After months of searching, finally, here it is. The house has the perfect number of bedrooms, the right number of bathrooms, an enormous walk-in closet and so much storage space you’ll have to buy more stuff to fill it all. The backyard is to die for, and it’s also near a dog park. Restaurants and shops are nearby and the neighborhood elementary school is the best in the county. Best of all, you can actually swing the asking price. Score! There’s just one problem. If the home is in Denver, you will almost definitely have competition. To get their hands on the home they want, Denver homebuyers have been going toe-to-toe in heated bidding wars for the past year. According to one real estate agent's research in the spring of 2021, the majority of houses were expected to sell above list price. Sometimes far above. A bidding war happens when a seller gets multiple offers on a house or condo, and potential buyers must compete by submitting new offers to the seller. Learn more about what causes bidding wars, and the strategies you can use to win one. How to Spot A Real Estate Bidding War Low inventory and low interest rates have sent homebuyers on the prowl all over Denver. Even though the Denver real estate market has cooled down a little in the past few months, "cool" is all relative. Most sellers can still expect more than one offer on their house or condo. Denver home prices are still at record highs. The median selling price for a home in the Denver metro area was $545,000 in June, according to the Denver Metro Association of Realtors. Those prices are up six figures from early 2020. That means if anything comes on the market that seems even remotely affordable, expect a bidding war. If the house needs only a few repairs and improvements—expect a bidding war. If it’s near restaurants, coffee shops, bars and nightlife—expect a bidding war. A desirable property with a great location, nearby amenities, good schools, parks and rec, will tempt more buyers to compete, even going beyond the seller’s asking price. A bidding war can raise the price tag anywhere from a few thousand to more than $100,000 over listing price. How Does A Bidding War Work? So what happens in a bidding war? Once the seller gets all of the bids, if there are multiple offers to choose from, the seller can choose one or allow prospective buyers to submit new bids. The seller might be looking for the highest possible bid, or other terms like an earlier closing date, waived contingencies, or a more convenient financing option, like an all-cash offer—or all of the above. Many first-time buyers are surprised to learn that the highest offer isn't necessarily the automatic winner. The best thing to do before getting carried away by a bidding war is to work with your real estate agent to develop a solid plan. How Can You Win A Bidding War? Here are three strategies to consider for winning a bidding war. Strategy 1. Make an All-Cash Offer Did you know that you don’t always have to have the highest bid to win? Sounds crazy, but making an all-cash bid might be more attractive to the seller than other more complicated options. Partnering with Accept.inc. gives you the power to make a cash offer on a house even if you don’t have hundreds of thousands of dollars in the bank. Once you're Cash Approved™, you’re ready to compete in a bidding war with the power of cash. The best part? When you buy a house with cash the Accept.inc way, you can still pay for the house over time, just like a regular mortgage. According to national statistics, a cash offer is four times more likely to win in a bidding war over an offer with a mortgage. And Accept.inc’s buyers save on average $13,000 in multi-offer situations, when compared to the highest offer. That means that even when the offer isn’t the highest, making a cash offer may give you a huge advantage and help you win a bidding war. Strategy 2: Include An Escalation Clause An escalation clause in a real estate contract states how much you would be willing to raise (or "escalate") your offer price in response to a higher, competing offer that the seller receives. The clause sets a specific amount above the competing offer you would be willing to pay, up to a maximum limit. Talk with your real estate agent about whether to use an escalation clause with your offer. Strategy 3: Adjust Your Offer Think of how to solve problems for the sellers and make their lives easier. Whether it’s offering the seller a quick closing or covering the cost of home improvements and repairs, anything you do to reduce risks, costs, and hassle for the seller could make your offer stand out as the most attractive option in a bidding war. Work with your real estate agent to choose the strategies that will fit your goals, financial resources, and the current state of the market. Your real estate agent can advise you about when to make your move, and when to play it cool. Get organized, be prepared, and stay informed! Start Bidding With the Power of Cash Ready to start with a big advantage when shopping for houses in Denver? Learn how to make a cash offer in Denver, with Accept.inc at your side.
Stella W | Dec 3, 2021
Homebuyer Resources
What's Better: Buying a House with Cash vs Mortgage?
If you've been looking at homebuying in the past few years, you know firsthand that great houses are getting snapped off the market in a matter of days, and sellers often have had multiple offers to choose from. Submitting the best offer in a seller's market can be challenging if you're stuck with traditional financing. And even in a buyer's market, you need to be leery of overpaying. But whether it’s a buyer’s market or seller’s market, there's one thing that can set your offer apart and be a win-win for both parties. The answer is: a cash offer. So, when can and should you consider buying with a mortgage vs cash? What are the differences between financed and cash offers? And is it possible to buy a house with cash and then secure a mortgage on the house afterwards? Here's what you need to know about the pros and cons of mortgages vs cash. Buying a house with a loan vs. cash Mortgages are the common way for Americans to pursue the American Dream of homeownership for a reason. For a long time now, they have been the only way for the vast majority of homeowners to be able to afford a house because most people can't afford to buy their first home with savings alone. A home loan allows them to make payments over time. Here are other reasons why mortgages are popular: When mortgage rates are low, like they are now, they are considered cheap money. The cost of borrowing is low compared to the benefits of owning a house faster. Buyers can build home equity without having to pay in full upfront.Spreading the cost of the home over 15 or 30 years into affordable monthly payments frees up money to budget elsewhere (including investing in other areas, like retirement plans or emergency funds). Making consistent payments on a real estate asset is a great way to build credit. There are tax-related benefits to a mortgage. So why wouldn't you want to buy a house with a mortgage? Some people want to avoid debt no matter what.Some people cannot qualify for a mortgage, for various reasons.But perhaps the biggest issue working against mortgages in the "cash vs. mortgage" debate is that 21% of deals that are delayed or fall through due to “issues related to obtaining financing,” according to the National Association of Realtors. Home sellers prefer cash offers because they're less likely to fall through. In other words, if your offer includes a financing contingency, your offer might be rejected if a competing offer doesn't. Cash offers are more attractive to sellers, but why? And what can you do if you don't have enough liquid to pay for a house with cash? Don’t take the pre-approval bait Many first-time homebuyers assume that their financing is secured if they get a pre-approval letter from their lender. But that's not usually the case. When taking the traditional mortgage route, you’ll provide a loan officer with some simple, surface-level documentation, including your credit report, proof of income and any assets or debts you may have. And...voila! In as little as 24 hours, you’ll receive a pre-approval letter stating you’ve qualified for a certain loan amount; BUT with one caveat — with a traditional lender, that letter is not a commitment that you’ll actually receive the loan. A pre-approval gets you in the door to make an offer, but the actual approval process — in traditional underwriting — doesn't begin until the house goes under contract and the underwriting process is initiated. For sellers, agreeing to an offer in this scenario is pretty risky, as a pre-approval doesn’t provide proof that you’ve secured the financing needed to purchase the home. Once your offer is accepted, a traditional mortgage lender will move you into underwriting. A lot can happen between the time you’re pre-approved and finally receiving the green light from your lender. An underwriter will perform a thorough assessment of your finances, and if you’re unable to meet certain requirements or your financial picture changes, your loan could be rejected. Keep in mind, this can happen mere days before you expect to sign the final paperwork — meaning both you and the seller have already invested in inspections, appraisals and more. Imagine thinking it’s a done deal? Your offer won. You were already envisioning yourself inside the home. And...poof! Just like that, everything falls apart. Even the seller and their real estate agent have to start back at square one when financing falls through. Why is a cash offer better than a mortgage? Everyone’s heard the saying, “cash is king.” But, when it comes to a real estate transaction, what the phrase really means is: cash equals certainty. Nothing makes an offer sizzle like proof of funds from day one. Where a pre-approval says, “There will probably be money in the bank a month from now,” proof of funds is actual money in the bank — showing the seller you have the cash to back up your offer. Sellers look for cash offers because they remove uncertainty from the equation. As a homebuyer in a hot real estate market, cash is the key to making your offer stand out from the crowd and winning your dream home. Plus, it puts more negotiation power in your hands. According to national statistics, a cash offer is four times more likely to win in a multiple offer situation over a traditional mortgage offer. What’s more, all-cash sales, which now account for 36% of the housing market, are highly attractive for both buyers and sellers because they speed up the closing timeline. What takes traditional mortgage lenders an average of 47 days to complete, can take 14 days or fewer with cash. But the big question remains: how does the average homebuyer afford to make an all-cash offer? And even if you had cash in the bank to put down 100% of the selling price, what about all those advantages to a mortgage we talked about earlier? It turns out that everyday homebuyers can buy a house with cash while still getting all the advantages of a mortgage. Here's how it's possible to make a cash offer with a mortgage Homebuyers now have the opportunity to secure the funds needed to make an all-cash offer on a home, backed by an Accept.inc mortgage. Accept.inc was founded on the belief that anyone who qualifies for a mortgage deserves an equal shot at winning — a belief that the best homes, school districts, and neighborhoods shouldn’t be reserved exclusively for buyers who have hundreds of thousands or millions of dollars in their bank accounts. We take the traditional mortgage process and flip it on its head, performing all the underwriting upfront. Yes, you can get a pre-approval quickly to immediately begin the house hunt in earnest, but the magic begins right after with our Cash Approval process. Our Cash Approval can be completed in as little as 72 hours and provides borrowers with the ability to shop the market with both confidence and cash in their pocket. Knowing your home-buying power is guaranteed on day 1, not day 31, is a complete game-changer. And this isn't delayed financing, where a buyer still has to have all the cash up front to buy the home on their own. In that scenario, the buyer brings their own cash to the table, and then gets a loan against the home afterwards, with some risk and potentially less favorable rates. With an Accept.inc loan, you buy the house with our cash and pay it back over time through a mortgage. You no longer need to decide whether you should buy a house with cash or a mortgage. Now you can have your cake and eat it too. By becoming Cash Approved™, you’ll be able to submit an offer with 100% certainty that the cash will be available at closing AND you can pay back the borrowed funds over time just like a normal home loan. Getting started is easy, and it doesn’t require any additional costs or fees. We offer competitive rates and can improve your chances of scoring your perfect home by 4X. To get the ball rolling, simply begin the Cash Approval process with this simple form.
Kelly K. | Nov 23, 2021