DON’T LET ‘CASH ONLY’ REQUIREMENT KEEP YOU AWAY FROM SOME OF METRO
The basic explanation for those limitations, however, is rather straightforward, according to Jim Merrion, regional director of the RE/MAX Northern Illinois real estate network, and buyers should think twice before ignoring these “cash only” properties.
“Listings that say, ‘cash only’ are almost always for properties that are not fully habitable and therefore not eligible for conventional mortgage financing,” he explained. “The property may be a foreclosure that has developed serious condition issues since its former owners departed, or it could be a home that was under construction but never completely finished by the builder.”
As for “proof of funds,” it is a demand that can be satisfied rather easily with a current account statement from a bank or brokerage or with a letter from a financial institution attesting to assets available.
Even if they lack sufficient financial assets to buy one of these properties for cash, buyers have a great alternative available to them in the form of a rehab loan. These specialized loans are usually some form of the Federal Housing Administration 203(k) program and are designed to allow buyers of one-to-four unit properties, including condominiums and townhouses, to get a mortgage at a fixed or adjustable rate that covers the costs of both the acquisition and rehabilitation of the property.
More information about the 203(k) program can be found at www.fhainfo.com.
According to David Piché of RE/MAX Signature in Chicago and a specialist in marketing foreclosed properties for lenders, about 80 percent of foreclosures he sees currently fall into the ‘cash or rehab loans only’ category.
He estimates that 60 percent of those buying these properties are investors, who will rehab and rent the units. In some cases they use their own cash to finance the purchase and repair; but many rely on rehab loans. Their favorite targets: brick multi-unit buildings.
“The brick shells of those buildings are almost indestructible so the buyers can be pretty sure they are getting a solid structure,” Piché explained.
it comes to ‘cash-only’ deals, the properties involved tend to be those with extremely
low sales prices, according to Lisa Wolf, an agent with RE/MAX Center in
“These are definitely ‘buyer-beware’ transactions where the purchaser wants to be super careful and extremely smart about getting a thorough home inspection and understanding the rehab costs that may be involved,” Wolf said. “You want to get your contractors out to the site and have them prepare solid estimates before moving ahead.”
when cash isn’t a requirement, it can be a great bargaining chip in the current
market where stringent underwriting standards can add considerable uncertainty
to offers made by buyers who rely on mortgage financing, especially buyers who
only have a minimal down payment, according to Sheryl Marsella, an agent with
“If buyers have enough cash to close on the home without financing or at least enough to provide a large down payment, they often can get what amounts to a meaningful discount on the purchase price. If a seller would accept a $370,000 offer with a minimum down payment, then for a cash buyer, the price might be 5 to 10 percent lower because cash removes the uncertainty involved in mortgage financing,” she said.
At the same time, Marsella notes that she has seen a trend away from all-cash home purchases in recent years.
“Mortgage interest rates have been so low for the last two years that it just hasn’t made sense to pay cash when you have a choice,” she said. “I’d estimate that less than 1 percent of buyers in our market are taking the all-cash route these days unless they are purchasing a home that won’t qualify for financing.”
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