If you’re buying a home in a competitive market, like this, making a cash offer gives you a major advantage. Homebuyers who made a cash bid in 2021 were four times more likely to win a bidding war, according to a recent report from Redfinreal estate brokerage.

Buyers got the message. Amid intense competition due to extremely low inventory of homes for sale, the number of all-cash offers has increased. In December 2021, almost a quarter of sales of older homes were for a cash offer, according to data from the National Association of Realtors. In some states, including Florida, cash offers make up about half of homes sold. Cash sales have also become common in Arizona, Nevada and West Virginia, according to Realtor.com.

Real estate investors and high net worth individuals make up a large percentage of cash buyers. But first-time home buyers or exchange buyers who have to pay off a mortgage on the home they’re selling often don’t have enough money to buy a home outright.

A silent partner

Enter new services that have sprung up over the past few years to allow buyers to make cash offers when bidding on homes. All deals with these companies back up buyers’ cash offers and guarantee a close within a certain timeframe, usually 30 days or less and sometimes as little as eight days. You may waive financing and appraisal contingencies (but not necessarily the inspection contingency) in your offer.

Fees vary from service to service and often depend on whether you are using an in-house mortgage lender or a third-party lender. If you don’t finalize your own financing before settlement, the company may buy your home hoping you’ll buy it back when your loan is granted.

Ribbon, a real estate company whose mission is to make buying and selling homes more “transparent, simplified and fair,” purchases a home on behalf of the buyer and then gives you up to 180 days to secure financing. Ribbon charges a transaction fee of 2% to 3.25% of the purchase price, depending on the state. The fees are added to your deposit when you submit the offer. You rent the house from Ribbon until you receive the money from your lender to buy the house back. If you are able to close with your own lender on closing day, the fee is reduced to 1%. Ribbon says the fee can be waived entirely if you get a mortgage through one of its partner lenders.

If your financing fails or you don’t buy the house back for any reason, you lose the deposits and the rent you paid. The rent covers Ribbon’s “costs of ownership”, including the cost of capital, taxes, insurance and homeowners association fees. The ribbon is currently available in 11 states: Alabama, Florida, Georgia, Indiana, Missouri, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia. You can invite your agent to work with Ribbon or ask the company to put you in touch with local agents.

Struck, a “digital homeownership platform,” launched Knock GO (Property Guarantee) last fall. Knock GO is designed for first-time buyers and those who don’t have a home to sell. Knock GO simulates an all-cash offer: you must apply for a mortgage from the company before making an offer and, in exchange, you can waive a financing eventuality and move to settlement within 30 days. Knock GO charges a $1,450 administration fee to the lender in addition to regular closing costs for the mortgage (including an appraisal).

If settlement is delayed, the company guarantees that it will fund the loan on time. It will also help offset the difference between the selling price and the appraised value of the home at no additional cost. In the event of a low appraisal, Knock will reimburse you for up to $1,000 of the appraisal fee as a closing credit. The program is available in approximately 70 markets in 15 states, including Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland, Michigan, Minnesota, North Carolina, Oregon , South Carolina, Tennessee, Texas and Washington.

HomeLighta high-tech real estate company with a nationwide network of agents, offers HomeLight Cash in Arizona, California, Colorado, Florida and Texas. To register, you must work with a HomeLight-certified real estate agent. HomeLight provides financing and commits to a 21-day closing at no cost. If you need a faster closing – as little as eight days in some cases – HomeLight buys the house and charges a fee ranging from 1% of the sale price of the house (if using a HomeLight loan) to 3% (if you use another lender). Fees increase if HomeLight has owned the home for more than 30 days.

Advantages and disadvantages

First-time home buyers may find these services appealing because they give them an edge over non-cash buyers in a tough market. Companies may also have similar programs for exchange buyers who are also selling a home, who can pay cash for a new home while their current home is still on the market. Any cash offer “will be the most competitive in the long run,” says Sumant Sridharan, chief operating officer of HomeLight.

However, weigh the costs against the benefits. Say you want to buy a house that costs $420,000 (the recent median sale price of the house) and you use a program that charges a 1% fee; you’ll owe $4,200, an extra amount of money that first-time buyers may have trouble finding. And buyers should pay attention to the fine print of their deals with cash-backed home buying services.

Whenever consumers use a new service, they should do their due diligence and be aware of any hidden charges.especially when making a purchase as large as buying a home, says Barry Zigas, principal researcher at Consumers Federation of America. At some level, the consumer will have to pay for the ease of the transaction, he says.

Also, before applying for a mortgage loan associated with a company that puts money for buyers, comparison shop for the best rate. Before you start, make sure your credit score is as high as possible. review your credit reports and correct any errors or potential misinformation. Then decide which type of mortgage is right for you.

“Long-term fixed rates are of course the most popular, but with rates rising significantly this year, borrowers may need to consider a variable rate mortgage,” says Keith Gumbinger, vice president of HSH, a mortgage information site. But ARMs come with both benefits and risks that borrowers need to understand “before they worry about the available rate,” he says. And when you’re looking for a lender to help you buy your home, it may be best to work with a local lender who knows the ins and outs of your market.

“Check their websites for deals, but also be prepared to make at least a few phone calls,” he says. “Not all lenders publish rates on their sites, or only publish ‘representative’ rates, and yours will likely be different.”

Why Money Is So Attractive

Typically, home offers come with a conditional mortgage, which means the sale cannot be finalized until the buyer’s mortgage is approved. The mortgage underwriting process can take 45-60 days. Removing the mortgage contingency means concluding fastersometimes in as little as two weeks, so that sellers can, for example, make their own cash offer on a home.

Additionally, lenders require an appraisal before approving a mortgage. When home values ​​rise rapidly, appraisals based on comparable home sales don’t always keep pace, creating a valuation gap between what a buyer would be willing to pay and what a lender will agree to pay. finance. With a cash offer, the house sells for the price the buyer is willing to pay.