Okay, I am starting to figure out a lot of things about the various types of financing out there. Conventional, ARMs, Hard money loans, private notes, etc… I am still a little confused on some things but slowly am getting there. I would appreciate if any of you can give me a simple explanation.
I keep hearing about all cash offers, and leveraging down payments. From what I understand some of these all cash offers are really just hard money loans that the buyer acquired funding for to fix and flip properties. (Not always since there are purchases with 100 percent cash).
My question is this.
To the seller’s mind, are these all cash offers any different than bank-financing with 10% or more down payment?
I am reading this book where the author is talking about how a seller may be more attracted to a 35% down payment versus a 10% down payment and it got me wondering about these “all cash” offers which some are HML (hard money loans).
Even trying to write this question is enough to make me go :banghead but I’d appreciate any one who can clear this up for me.
Hard money loan, line of credit purchase, it can all be written as cash offers. It looks the same at the closing table (either a cashiers check or bank wire).
Unless you tell them directly the seller has no way of knowing how much of a down payment you are making. Much of the time when a cash offer is made the buyer has been pre-approved witha private lender or HML. This way once they find a property they can move on it very quickly.
Also, a higher down payment may be attractive to a seller if they’re doing an owner finance deal. Some “all cash” offers that are really using a HML, will not have a financing contingency and/ or thy can close in a week or so, instead of 30 - 45 days like conventional financing. Sometimes an all cash aoffer means the buyer actually has the money on hand. Regardless of how they do it, many quickly refi or sell to get their money back. I probably confused you more :shocked but, oh well :biggrin :rolleyes
How does the pre-approval process for hard money loans work? Can you get pre approved with a lender and then look for homes? Or is it most likely for each individual property? How does the pre-approval process work if hard money loans are not based primarily on income the way that conventional loans are? How can HML really approve the property without an inspection?
So is it safe to presume that HML are all cash offers and bank mortgages are not?
I am curious about this too. I know I have read that a mortgage broker can help with a pre-approval letter but I am not sure if that applies to HMLs as well.
To the seller all sales are all cash. Either from the mortgage company or from the buyer’s bank account. The attraction to all cash is the closing can be faster because you don’t have to wait on the bank for funding. Also most real estate contracts give you an out if you can’t get the house financed. This is off the table. So an agreement is going to happen and swiftly.
So it would be safe to say that most investors that are using hard money, but putting in their offer as “ALL CASH” are most likely going to use the inspection contingency to get out of the deal if the Hard money financing doesn’t come through for some reason?
How would you justify this if the house did in fact pass the inspection? If you’re worried about the financing not coming through, you should put in a financing contingency. If you’re investing in an area, you don’t want to get a reputation as not being honest in your deals…or for that matter, not being able to close deals either.
Justin - depending on how you phrase the inspection contingency clause you actually don’t need to give a reason to back out of the deal. The point is that you typically have only few days to do so… The seller will try to get the inspection period to be as short as possible.
The risk is if the financing fells apart after your inspection time has expired. And in most cases this is really the problem - you learn that the lender will not lend to you only few days before the closing, which doesn’t give you enough time to find another lender. In my mind, this is the reason why if you need financing it would probably be wise to have a financial contingency clause.