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How to Compete with Cash Buyers and Make an Offer in Today’s Housing Market

Vermont Home in Summer

Faced with a real estate market that has limited inventory and higher rates, it is important to know how you can put your best foot forward with the best offer possible.

Many times, a home may have multiple offers, including cash offers. How do you put yourself in the best position to compete?

 

WHO YOU GET PRE-APPROVED WITH MATTERS.

When submitting an offer, the seller will often look not only at the written offer but also at the pre-approval letters submitted with it. Having a local lender’s name on your letter, who understands the market and has a reputation for meeting important dates and closing on time, can make your offer stand out.

 

NOT ALL PRE-APPROVAL LETTERS ARE CREATED EQUAL.

You have your pre-approval letter in hand and are ready to submit an offer. Has your lender verified your income thoroughly? This includes not just a review of your most recent pay stub, but also looking over your W2s and sometimes gathering a written verification from your employer. You will want to ensure your letter specifies that your income has been checked and verified.

Along with income, have you submitted your asset statements for review or utilized a third-party service to provide asset information? This could include cash and savings statements, any investment portfolio accounts you might hold (including retirement accounts), and additional real estate properties and their values. A lender will need to comb through your statements to look for and verify large deposits made, and to ensure you have the funds on hand that will be needed on closing day. You will want to ensure your letter specifies that your assets have been verified.

Has your credit report been pulled? A lender will have a hard time committing to financing if they have not yet pulled your credit report. A “hard” inquiry will give the lender the most accurate summary of your credit and payment history. Once credit has been pulled, it is typically valid for up to 120 days. If you do not close on your new home before then, your credit will need to be accessed again. Pointing out your credit report has been reviewed is something you will also want in your pre-approval letter to make your offer more competitive.

 

HOW TO REMAIN CONFIDENT IN FINANCING WHILE YOU SEARCH.

The search for your home can vary in timing, so you want to steer clear of some common mistakes after you get pre-approved. Avoid moving funds amongst accounts, changing employment, increasing your balances on credit cards, or taking out new loans. If you must do any of these things, be sure to communicate with your Mortgage Loan Officer ahead and during the change so they can re-evaluate your eligibility and update your pre-approval letter if needed. Remember your Realtor and your Mortgage Loan Officer are there to help, so the details are important!

 

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THINK ABOUT YOUR CONTINGENCIES.

Contingencies are an important part of your offer and should be discussed with your Mortgage Loan Officer, Realtor, and attorney. Keep in mind that just because someone is offering cash, it doesn’t mean they have elected to waive the contingencies.

An inspection contingency is a common item seen on contracts. You work with a home inspector to look at features such as the safety, structure, and soundness of the property. Your Realtor can likely recommend home inspectors, and you can ask each what they do and don’t look at during any inspection. This is an additional out of pocket cost for you as the buyer. In some cases, you may feel comfortable waiving this if you have a family member who is handy visiting the home with you, or if the sellers have a recent report you can assess, for example. Other times, you may want an inspection, but agree that only items over a certain dollar amount would be cause for a renegotiation. Always weigh the options and make the best decision for you.

Another common contingency is an appraisal contingency. This protects you if the appraisal does not come in at or above the purchase price and allows you to try to renegotiate, or back out of the purchase. In some cases, you may choose to waive this contingency if you have the extra funds to cover any gap in the price and the appraised value. If you are thinking of waiving the appraisal, ensure you have discussed it with your Mortgage Loan Officer, Realtor, and attorney.

The last contingency item is financing. If you plan to finance the purchase, you will want to have a financing contingency to protect you in the event of something falling through with your financing of the home. In rare cases, there may be times when you want to waive this and write the offer as if you are paying cash. There are many risks to this that should be discussed upfront with your Realtor and attorney. You would never want to do this unless you have access to the full amount of the price should the financing fall through or a delay happen with your financing.

 

CONSIDER INCREASING YOUR OFFER.

As you might guess, higher bids are often more attractive. You can make your offer more competitive by increasing the amount (consider an escalation clause) or making a larger down payment, for example. (You’ll want to stay within your pre-approved budget, of course.) Your Realtor can be your trusted advisor for picking a final number and deciding how much money to put down.

 

DON’T GIVE UP!

Once you have done your part to get a solid pre-approval, hang in there. You want to make sure you are working with a team of trusted partners (local Mortgage Loan Officer and Realtor) and try to avoid financial or employment changes throughout your search. It may take a bit of work and many offers, but you’ll find a home.

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About Annie Rogers

Annie has been a consistent presence at the credit union for 20 years, with mortgage experience spanning 15 years. As a Mortgage Origination Supervisor, she proudly stands with her team and enjoys helping borrowers reach their goals of homeownership. A lifelong Vermonter, Annie resides in Williston with her husband, two kids, and dog.

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