In La Jolla, roughly 30% of homes are purchased in cash. Okay, so this is obviously appealing to sellers as they don’t have to worry about the financing portion of the transaction, which eliminates any risk of the loan not going through. As when you get ‘pre-approved’ for a loan, it just means that you qualify to get a loan, and it isn’t a a guarantee. Thus, in the transaction, there is a loan contingency period in which they actually underwrite your loan. So how do you compete if you’re financing your purchase? Read below for ways your offer can come in competitively against cash buyers.
1. Get your loan underwritten now
The time frame it takes to process and fully underwrite a loan is generally 21 days. Now, lenders don’t like to do this before you put in an offer as it takes time, and you could ultimately decide not to buy, making it a complete waste of time for them. Therefore, they ‘pre-approve’ the loan for the time being. If you are 100% certain you will be buying a home within a specific timeframe, you can ask your lender to get your loan underwritten now. This reduces the time in which it takes to process after you make an offer, from 21 days to roughly only 14 days. Time is a huge factor in a transaction, so anything you can do to reduce your contingency periods is crucial.
2. Decrease your inspection period
The inspection contingency is normally 17 days. This allows you time to investigate to make sure the home is in good shape before purchasing. If something comes up that needs repair/replacement, this can be negotiated in, but the seller is in no way obligated to pay for it. Essentially, you’re always buying a home ‘as is’, but during this period you can back out if something major arises that the seller isn’t willing to cover. Based off of this, you can reduce this period to only 10 days, and if you’re on top of your game, this is plenty of time to thoroughly investigate the home, allowing you time to back out if need be without losing your deposit.
3. Having a 3% initial deposit is a must
This is somewhat standard, but the initial deposit (sometimes referred to as earnest money) can range from 1-3% of the purchase price. It is the money that is paid out to escrow 3 days after an offer is accepted, and is basically to show the buyers seriousness to purchase before all the remaining monies are paid out at close. The risk for you? If you decide to back out of a deal after the contingencies have been lifted, you can potentially lose out on these funds. So if you’re 100% serious in buying, it can benefit you with little to no risk.