A report recently published by Goldman Sachs has estimated that 57% of all houses bought, in 2013, where all-cash purchases. As recently as 2005, all-cash deals only accounted for roughly 19% of purchases. The decline in bank financing is directly related to the banks being more careful about lending money to home buyers. The risks are higher these days.
How a cash home purchase differs from one with bank financing? Below are a few of the major differences between the two offer types..
No banks or Under Writers
An all cash offer means that the buyer is not dependent on the bank to approve a loan. In the current market, many banks are declining loans for a variety of reasons such as lower then expected appraisals. This will NEVER happen with a cash offer. There is no bank involved, the seller already has the money to pay for your house in full.
Cash purchases pretty much eliminate most of the headaches involved with a real estate transaction. Banks love to wait to a few days before closing to give the final approval on a loan. Even if the buyer was pre-approved it doesn't guarantee they will get the money.
Typically with bank financing, you'll need between 30 to 60 days for the bank to approve the loan. The bank needs to perform an appraisal and then have their underwriter review the loan before it will be approved. Banks are swamped and this process takes a long time.
With an all cash purchase, the buyer will not require an appraisal and he is the decision maker. Typically the closing can take place in as little as 7 days after the offer is accepted.
With an all cash offer...There is no Financing Contingency
With an all cash offer...There is no Appraisal Contingency
With an all cash offer...There may be an inspection contingency depending on the property.
Selling A Current Property: This contingency is not generally used by investors, but is very common among homeowners going from one house to another. It states that the buyer has a set amount of time to sell their current home before closing on their new home (your house). If that time period passes the agreement you had with the buyer can now be cancelled.
With an all cash offer...There is never a contigency to sell another property
Even though loan fees do not directly affect a property seller, they do affect how much the buyer will be able to offer. In many cases the buyer will attempt to negotiate some of these costs into the deal...costing you money.
Below are a list of the possible loan fees...
Processing Fee. Lender's cost to process the loan. Cost can range from $50 - $100
Credit Report. The cost charged to the bank by the service providing credit report services. $50-$100.
Appraisal. The cost charged to the lender by a certified appraisal company providing the appraisal of your home. $200 - $300
Flood Certification or Flood Tracking. The cost charged to the bank by the service which notifies the lender whether or not your home is located in a flood zone. $15-$30
Origination. Origination fees are normally charged by mortgage brokers, bankers or companies. 1% of the amount borrowed.
Warehouse. Warehouse fees are normally charge by mortgage brokers, bankers, or companies which carry a line of credit with a larger bank or finance company.
Commitment Fee. Fee paid to the lender at the time of commitment. Charged in place of the attorney review or title review fee. $100 to $300
Tax Service Fee. A service which informs the mortgage holder of any liens which apply to the home where the mortgage holder would take second position. $80 to $100
Doc Prep Fee. Fee to prepare the mortgage documentation. $50-$100
Attorney or Title Review Fee. bank's attorney fee for work performed in connection with the mortgage. $150-$300
Rate Lock Fee. Cost to lock the rate. Usually refundable except when an extension is required.
Pre-Paid PMI. If PMI is required on your loan, buyer is required to pre-pay some of this PMI at closing. The amount required may range from 2 to 14 months of your monthly premium, depending on the type of coverage the lender offers.
With an all cash offer, none of these loan fees will apply. This allows for the buyer to offer more money. Additionally, a tactic of many people who use bank financing is to ask for up to a 6% concession (money back at closing) in order to help offset the loan fees.
Attorney Costs. $600-$1,000
Title Search. $150 - $250.
Title Insurance. $500 to $2,000
Home Inspection. $300-$400
Termite Inspection. $75.
Well and Septic. $250.
Underground Oil Tank. $400.
Recording Fees. $100-$200
Overnight Mail. $75.
Other Costs. Lead Paint , Asbestos and/or Radon Tests.
These fees will typically still apply as even with a cash closing, state laws require many of these items. However the results of them can be negotiated when dealing with a cash offer.
There is no question that cash offers are stronger and safer. Not only are they better offers then offers with financing involved, but they allow the seller to get their money quicker.
Scotty Buys Houses
Scotty Buys Houses