How to Compete With Cash Buyers When Shopping for a Home

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KEY POINTS

  • The housing market remains competitive even as mortgage rates have gone up.
  • Some buyers are paying cash to give themselves an edge when making an offer.
  • It's possible to still buy a home if you need a loan, but it can be harder.

If you can't afford to be an all-cash buyer, you should read this.

The housing market has been very competitive over the past several years, with prices surging and with low housing stock leading to bidding wars. As many homeowners field multiple offers on their properties, an increasing number of buyers are making all-cash offers to try to stand out.

Not everyone can afford to pay cash for a house, though. And if you can't, there are some techniques you can try in order to make your offer competitive even if you have to secure a mortgage. Here are three of them.

1. Get pre-approved for a home loan

If you want to be competitive with all-cash offers, it is critical you get pre-approved for a home loan before making an offer.

Providing proof of pre-approval will help to convince sellers that you can get the funds needed to close so they don't end up wasting time with someone who can't actually afford the home. This helps to level the playing field compared with cash buyers who must provide proof of funds when making an offer.

If you are pre-approved, you will also be able to get to closing more quickly, which is a major benefit of cash offers since sellers don't have to wait for an all-cash buyer to go through the financing process. If you've already been pre-approved, a lot of the leg work has been done so sellers won't be as worried about getting stuck waiting months for a deal to be done.

2. Offer to make a larger deposit

If you can make a larger deposit, you'll show a potential seller you are more serious about going through with the transaction. Since you'll be putting more of your money on the line in case you end up walking away without justification, this can make you seem like a much more reliable buyer.

3. Waive contingencies when it is possible and safe to do so

Finally, another great way to make a more competitive offer is to waive any contingencies that it is safe and practical for you to waive.

Contingencies are conditions that must be fulfilled prior to closing on the deal. If a contingency cannot be fulfilled, you have the right to walk away from the sale and get your deposit back. Obviously, the more contingencies included in a contract, the greater the chances that the deal falls through -- so sellers don't like a lot of contingencies to be included in an offer.

Now, you don't want to give up certain things, such as the right to an inspection of the home. Otherwise, you risk facing a big financial loss if there are unforeseen problems. But you can agree upfront in writing not to ask for any repairs or money off the home unless major problems (in excess of a certain dollar amount) are determined.

You may also want to waive the appraisal or financing contingency if you are confident that you will get the money to close on a loan since these contingencies often make sellers nervous about you not being able to get the money needed. Just be sure you don't risk losing your deposit if the appraisal comes in too low or something falls through with the mortgage.

By following these three steps, you can hopefully end up with an offer that sellers will want to take -- even if someone else agrees to pay cash for the property you're interested in.

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