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How you can make a cash offer on a home without having all cash on hand

One key to making sure you’re getting a good deal, according to one expert, is to make sure you shop around for a loan.

PHOENIX — Buying a home in the Valley has become increasingly difficult since the start of the pandemic, and one reason for the difficulty is that large institutional buyers have a lot of cash and have decided to try to grow that cash by buying homes. 

They often do so with cash offers well over the asking price of a seller.

Most first-time homebuyers have to finance the purchase of their first home, applying for a mortgage and paying it off over the course of 15 to 30 years. 

Financing can cause snags in the home buying process, and that’s why many sellers prefer to go with a cash offer over a financed offer. 

Without contingencies, the sale is nearly immediate, and a quick closure allows for a quick transfer of money. Sellers are then able to take that money and buy their next home.

First-time homebuyers cannot compete with hedge funds, LLCs, and other businesses that have seemingly endless amounts of cash, but a number of companies are at least helping to make things more competitive by allowing even first-time buyers to make contingency-free offers, just like a cash buyer.

Knock is one such company. The real estate lender and loan originator will guarantee a home loan and its closing date, free of contingencies, to allow a potential buyer’s offer to be more competitive, according to CEO Sean Black.

“What's happening right now in the market is sellers don't want contingencies, they don't want to know that your mortgage is contingent the offer, your offer is contingent on the mortgage closing on a certain day,” Black said. “And if it doesn't close on that day, and it gets delayed, they incur the inconvenience and uncertainty.”

OpenDoor and Homie will do the same.

It may give new buyers, or any buyers, an edge, but Dr. Deirdre Pfeiffer, an associate professor of urban planning at Arizona State University, said anyone interested in agreeing to this type of arrangement needs to understand what he or she is getting into, specifically, what terms an agreement is setting.

“Terms meaning interest rates, fees, are there pre-payment penalties? All of those things,” Pfeiffer said.

One key to making sure you’re getting a good deal, according to Pfeiffer, is to make sure you shop around for a loan. That can be difficult when the speed of home sales has many potential buyers making offers before they’ve ever set foot in a home.

“Talk to other lenders,” Pfeiffer said. “Compare the terms that are being offered by these newer cash-buying lenders to other commonly used conventional lenders.”

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