Real Estate: 2021 Buyers and Lenders get creative
By JESS BARRON, Lindsey’s Inc. Realtors
As the current real estate market stays competitive, multiple offer situations are extremely common. Realtors are seeing homeowners receive multiple offers on their property, with several different types of financing involved with the offers.
We are seeing cash, conventional financing, FHA financing, VA financing and contingency offers (buyers need to sell their current home before purchasing their new home). The cash offers normally win these multiple offer situations as they can offer a quicker closing with little to no risk being taken on by the seller.
Appraisals are typically waived with cash offers. This is important as properties are not appraising as high as owners want. Buyers are overpaying to secure housing in this market with a limited supply of listings and high demand.
So, what can the buyers that require financing do to be competitive in this market? Many buyers are waiving their due diligence, or inspection, period. Others are offering to pay the difference between the contract price and the appraisal value if the property does not appraise for the sales price. Not everyone is able to do this.
Lenders are getting creative to aid buyers. We are seeing “cash advantage programs” and cash out refinancing being offered by mortgage brokers. The real estate world has seen something similar before. “Rent to own” programs were common during the recession 10-15 years ago as buyers struggled to purchase during the recession. This cash advantage program is different however, just as the market is different today.
These cash advantage programs and cash out refinances are a great option for someone with a property to sell first before buying their new property. Most sellers will not accept a contingency offer if a buyer has a home to sell first before purchasing their new home.
With these alternative programs, buyers can move into their new home without selling their current home first. The lender works with companies like Ribbon to purchase the home, with cash, for the buyer. The “buyer” then has 180 days to buy the home back from Ribbon. Buyers must be mortgage-eligible to qualify unlike other rent-to-own programs. Companies like Ribbon make money on transaction fees.
I would suggest consulting a local and active mortgage lender with questions about this program and cash out refinancing. Ribbon.com is a great source of information for this process. In this historically competitive market, buyers need to consider any and all options before making a decision as important as the purchase of a home.
Jess Barron is an Associate Broker with Lindsey’s, Inc. Realtors and former President of the Newnan-Coweta Board of Realtors.