I have been emailing back and forth with a realtor about a rental property that I want to go see (short sale). He asked if I am approved for financing, which I am. I also let him know that if they’re looking for cash, I have no problem doing a HML. What he said is that the bank will probably look for cash first, conventional loan second, but that they would probably pass on a hard money loan. Why would the bank pass on a hard money loan? Isn’t that the same as cash to them? My initial hope was to use hard money with no money down to purchase and do any improvements, refinance to a conventional, and get it rented. Am I missing something?
The bank that is selling the house has no idea what type of financing you are using. To them all purchases are a cash sale. The only way they know differently is if you have a financing contingency. Here is how you get around this issue. Contact a mortgage broker and get pre-qualified. Explain to them what you are trying to do and ask them for a pre-qualification letter. Once you have that on their company letterhead you submit that with the offer to the bank. If you close the deal with a hard money lender how will they know the difference? Sounds like that realtor is a real piece of work.
That’s what I was thinking is that HML should be same as cash to the bank selling the property. He wrote back saying that a lot of the listings stated “No Hard Money Loans” in the realtor remarks.
That’s crazy , I don’t think i’ve seen any listings that state “No Hard Money Loans” . It seems like small mindedness or a realtor that isn’t investor friendly. They should actually be happier with hard money as it should take less time than a conventional loan , right?
I haven’t seen any comments in the realtor or public remarks on the MLS saying “no hard money loans.” It may be different where you are located. You can easily verify this information–just ask the realtor if you could get copies of the MLS listings that state this requirement–and read for yourself. If s/he refuses to give you the listings, then I would find another realtor (some may hesitate to give you listings with the “realtor remarks” but I would find another agent if the agent refuses after you explain that you are an investor and want to read the realtor comments, especially those saying “no HMLs,” since that’s what you want to use to fund the purchase).
However, as someone above mentioned, if you do not check the financing contingency on your contract, the bank typically will consider that a cash offer (some people who need financing actually check this box just to appear attractive in a multiple offer situation . . . and they are willing to give up their deposit if the financing doesn’t work out . . . however I would not take this route b/c technically the bank theoretically (legallly) could sue you for specific performance if you can’t get financing . . . at which time you darn well better be able to get the loan . . . it appears doubtful a bank would ever spend the time and money on that effort but you never know).
In any event, I’ll tell you what is required on almost every bank listing or short sale. IF you are a cash buyer, the listings usually state that you must have a letter with proof of funds, NOT a pre-qual letter. I was wondering just a few days ago if the HMLs have been giving proof of fund letters, which is the only way that you could appear as a cash buyer to a bank, at least in my neck of the woods (Central Florida).
Thanks for the great replies, everyone. I was starting to doubt my methods, but now I’m feeling as though I was on the right track in the first place. I just replied to him to have him elaborate on what exactly the agent remarks says… wish I could just call right now, but gotta sit at my corporate job all day. :evil
I found this guy on Craigslist and he’s been great for finding potential properties. However, I should probably just try to network some more at the local REI club to find some real team players. Also, I’ve read a ton on here about the pros & cons of a RE license, but I have to say, this is one reason that I’m tempted to eventually get licensed myself.
Actually realtors are not allowed to share the realtor remarks with clients. Those remarks are supposed to be confidential and meant for other agent’s eyes only. Any realtor sharing those remarks with you would be violating the rules… Please remember that in those remarks, realtors typically include lockbox code information with the assumption that only other realtors will see them.
And what is the point about asking to see the other listings? If they do exist or if they don’t exist, what difference it would make to your situation? And even if they do exist, realtor remarks are not binding. You can put whatever you want in your offer.
No. HML is not the same as cash. Think about it - if you make an all cash offer without any financing contingency and show proof of funds, the bank’s confidence in your ability to close is much higher than if you submit an offer contingent on HML financing. What if the HML pulls back at the last minute? So, HML is not the same as cash to the bank. It will be when you close - at that time the bank will receive cash for the transaction (and at that time it doesn’t matter if you used conventional finance, HML, your own cash, or your mom’s savings). But until you get to that closing table, there is a big difference between a cash offer and all the others…
Actually in my state the “standard” contract states that the earnest money will be considered as enough compensation in case the buyer backs out of the deal. I guess the bank could still sue (anyone can sue anyone else for whatever he wants), but I believe they would have a really hard time overcoming that clause.
Be really careful about what “standard” contracts say. They vary greatly from state to state. What you are saying in not true in my state.
Also, my point is to ask specifically about what the realtor remarks say about whether a letter re proof of funds is required. The agent should have no problem telling him the exact verbage in the realtor remarks, so that he can decide for himself.
Finally . . . straight from the mouth of a listing agent with lots of REOs trying to get on of my last offers accepted . . . he said that many banks consider offers w/o financing contingency to be the same as a cash offer. (In other words, as long as there is no financing contingency, they look at it like a cash offer, and this particular bank did not require proof of funds, although most do). Then, he said, if you do not close the deal, they will just take your deposit. So, in actuality, you are agreeing to forfeit your deposit (according to him).
However, according to mua, if there are no contingencies (b/c you get rid of the financing contingency . . . and you either have no inspection contingency OR the inspection period passes and you stay in the deal), regardless of your deposit, you better make darn sure you read your particular contract regarding whether you are just surrendering your deposit OR binding yourself to close the deal.
The deposit is what you are guaranteed to lose. It is not the limit on potential damages if you do not close a deal w/o any contingencies or after contigency periods have lapsed. If that were true, there would be no such thing as “specific performance” lawsuits . . . which is lawsuits wherein someone, who paid a deposit, is sued for not going through with a binding contract. This lawsuits are often used in the real estate context.
BUT contracts vary by state . . . you need to read your particular contract to get the nitty gritty.
Thanks,
Tina
Although I used to practice law, I am not giving any legal advice. This is a discussion board where I am offering idle chat. I cannot give accurate advice without reviewing the facts and law that apply to your particular case, as well as reviewing the underlying documents, which I have not done.
I agree 100% and this is why I started the sentence with “in my state”. I can’t comment on other state’s contracts.
I thought you were suggesting he asked to see the realtor remarks to check whether or not the listing stated “no hard money lenders”. This is why I made my comment. But I again agree with you 100% - the realtor should not have any problems sharing the specific language around financing from the realtor remarks.
Tina - very interesting insight. This tells me that those banks that consider offers w/o financing contingency as cash offers would probably want a larger earnest money. Am I right? I am usually offering $500 earnest money for $40k-$50k properties. Should I consider raising it?
Sorry, but “in my state,” is really just my way of making sure you understand that I haven’t read your contract. Seriously, you can have a binding contract in ANY state if there are no remaining contingencies and/or no specific language to the contrary. I would be surprised if there was language to the contrary in any standard state contract (b/c that would essentially eliminate any “teeth” in the contract that would allow a specific performance lawsuit . . .and therefore . . . why have a contract. . . . why not just a non-refundable deposit and you trust me to show up at closing?), but I have not read them all, so I would like to see the language in your contract.
That being said, typically, most banks and even sellers in general do not exercise their right to file legitimate lawsuits, at least from my observation. But that doesn’t mean it couldn’t happen, esp. as markets get nastier and deals get more difficult. I wouldn’t sign a contract w/o a financing contingency unless I had cash (for this reason), but that’s just my conservative nature.
Yes, I think raising your earnest money and waiving all contingencies would help. The listing agents actually suggest that route. It’s just scary unless you are 100% sure that you are going to be able to close. What if your financing falls through? You will lose your deposit. I wouldn’t provide any deposit that I couldnt’ afford to lose, but a higher deposit w/o a financing contingency, from what I have been told, will make your offer more attractive to AMs.
Also, this approach does not always work, with all banks, so if it doesn’t work on your first try, don’t let that stop you from trying again. I say this b/c I made an offer through a listing agent for an REO (I decided to try to buy through him, even though I would otherwise be able to make the offer and get the commission myself, because I wanted one particular deal so badly). I truly believe that he was giving me inside information that he should not have been giving me, which is exactly why I made the offer through the listing agent. Anyway, he told me that typically the banks see “no financing contingency” and “cash” as the same thing. But that isn’t always true . . . and it wasn’t true for the particular bank (his listing) that considered the offer in that case. So they rejected my offer and went with a truly all cash offer.
Actually, now that I think about it, I insisted that we include a financing contingency but write “buyer will forfeit deposit if buyer cannot get financing,” being cautious for the reason that I explained above (didn’t want to be in contract that I knew would be binding w/o any contingencies). So, now that I think about it, I didn’t really follow his advice to the letter. His advice would have been to write the offer without any financing contingency. Period. Still I don’t see how you get around the few banks that require letters with proof of cash. But also you can write the offer w/no financing contingency, do not provide the letter w/proof of funds (since you cannot), and let the chips fall where they may. I’ve also seen discussions among agents wherein they are complaining that people don’t provide the letters that banks supposedly “require,” but they still present those offers. So you never know. Just put your best foot forward and make lots of offers, focusing on properties that have been listed for a long time (in my area, there are still a few gems that have been listed for a long time).
Good luck . . . just trying to help . . .there is plenty that I do not understand (which is why I’m here) . . . good to help each other.
Tina here is the language from my state’s “standard” contract…
“in the event of Buyer’s breach arising from Buyer’s failure to deliver the notice required by Section 2a (this is the financing contingency section), or Buyer’s inability to obatin loan approval due to the waiver of the appraisal contingency pursuant to section 2c, Seller shall exercise this option and accept the Earnest Money as Seller’s sole right to damages.”
So in my understanding if the buyer can’t secure financing, the seller can’t sue him for specific performance… He has to accept the Earnest Money as compensation. This is my understanding.
