4 ms·

No, not really. People are still readily getting loans with far less than 10%.

by jcomis 6y ago

tibbon 6y ago
In competitive markets, the issue isn't getting the loan - it's getting an offer accepted. Sellers will heavily favor a cash offer, as it's faster and far more assured of going through. One strategy I've heard about people doing is to take a pile of cash, acquire the property, and then refinance it pulling out 80% of what they put in so that they can both have a mortgage and have a stronger buying position. Add in things like dropping inspection, no contingencies, etc... and it gets really hard for many first time home buyers to compete. Additionally, coming in with an FHA 3.5% down, vs someone with a traditional 20% down - the sellers will favor the 20% as again it's less paperwork, easier, faster, and more certain to go through if the assessment is off by a few %. I had no idea about this before trying to buy a property in New England. So much of traditional advice doesn't include these details. What's weird about it to me is that this is one of the few places in US consumer markets where the seller cares deeply about your method of purchase and where the money came from. Buying a used car? They don't care if it's cash, credit, loan, etc generally. Hell, most car dealers want you to use a loan from them and would prefer that over cash in many ways. When you go to WalMart, they don't deny you buying something for using a credit card vs cash.
- SoSoRoCoCo 6y ago
  > this is one of the few places in US consumer markets Did you mean geographically? Or temporally? because if the second, I'm pretty sure that is a direct legal consequence of the 2008 housing meltdown that boned both sides of the lending equation.
  - jedberg 6y ago
    Even before 2008 it's an issue. I bought in 2008 and cash offers were still preferred over 20% down, which was preferred over less than 20% down. It's because when you make the purchase agreement, the buyer can get a bunch of outs, many of which are based on financing not getting approved. The more difficult your financing situation, the more chance there is of it falling though.
- ProfessorLayton 6y ago
  >What's weird about it to me is that this is one of the few places in US consumer markets where the seller cares deeply about your method of purchase and where the money came from. Often times sellers are trying to buy another home and have put a contingency offer (depending on the market) on another home, so they're heavily incentivized to accept an offer that moves quickly so that they can close sooner. A tiny bit more money may not be worth the risk of having multiple deals fall though, hence all-cash offers and traditional loans being more attractive. With that context, it's no wonder why sellers care so much about the method of buying.
  - ryandrake 6y ago
    When I was house shopping almost a decade ago during the latest seller's market frenzy, there were several cases where our offer (needing financing) was by far the highest dollar amount, but we lost out to someone offering less in cash and no contingencies. We put offers out on dozens of houses, and always got beaten by an all-cash buyer. Our agent urged us to consider no contingency offers in order to give us a fighting chance against all the all-cash buyers.
- lotsofpulp 6y ago
  >What's weird about it to me is that this is one of the few places in US consumer markets where the seller cares deeply about your method of purchase and where the money came from. It's not weird at all. Buying a car or TV from Walmart with a credit card does not carry anywhere near the risk of the transaction failing that buying real estate does. It's simply a function of the probability of the transaction succeeding (or "closing" as it's commonly referred to). With a loan, there are multiple parties whose requirements need to be met, from the lender, the home insurance, the title insurer, the seller, etc. The more entities you cut out, the less chance of the transaction failing. Underwriting a car is also much more simple and less risky for a lender than a house, which has much higher downside risk and unknowns. Not to mention the myriad laws resulting in legal liability and opportunity costs relating to real estate purchases, as opposed to a car purchase or a TV purchase where the worst that can happen is the seller takes it back and sells it to someone else.
- eli 6y ago
  The buyer can just waive the financing contingency. To the seller that's almost the same as making a cash offer.
  - nrmitchi 6y ago
    I mean, not really. The financing contingency means that if your financing falls through, you get your earnest money back. Assuming a 500k purchase with 1% earnest money, waiving the financing contingency means that the seller receives at least 5k. Even with a financing contingency waived, if the buyer has 100k, and their financing falls through, there is no way for them to magically make 400k appear for the sale to happen. If you are assuming that the buyer has the full purchase price in cash anyways, and are only taking a mortgage because rates are so low, then ya, your point stands (waiving financing contingency along with proof of funds). But lets not pretend that having cash to cover the full price of the property is the common situation.
  - foogazi 6y ago
    Higher risk for the buyer if financing falla through Also not a guarantee for the seller - but they’ll get to keep the deposit
- polygotdomain 6y ago
  This 1000%, I sold in March right at the beginning of the pandemic in an incredibly competitive market. The final buyer was determined by the specifics of their offer, not just their final price. FHA with 3.5% down just adds additional risk for closing that 20% conventional doesn't. That risk is minimal, but it's a risk the buyer doesn't have to take. I'll also add that in competitive markets you also get into a situation where it's a bidding war and you're pushing what the property might appraise for. If you're doing 3.5% down, even though you might be approved up to X, the bank may not be willing to stretch the appraisal for the property. With 10% or 20% down, that's less of a concern. Also FWIW, for new cars, how you pay does matter. The dealer makes money on the financing, so they will give you a different cash price vs if you go with their financing. The reason being is that they want to sell you a "zero percent" loan that effectively bakes in the interest up front, so their financing will look better, but the final price will be higher.

No, not really. People are still readily getting loans with far less than 10%.

by jcomis 6y ago

No, not really. People are still readily getting loans with far less than 10%.

In competitive markets, the issue isn't getting the loan - it's getting an offer accepted. Sellers will heavily favor a cash offer, as it's faster and far more assured of going through. One strategy I've heard about people doing is to take a pile of cash, acquire the property, and then refinance it pulling out 80% of what they put in so that they can both have a mortgage and have a stronger buying position. Add in things like dropping inspection, no contingencies, etc... and it gets really hard for many first time home buyers to compete. Additionally, coming in with an FHA 3.5% down, vs someone with a traditional 20% down - the sellers will favor the 20% as again it's less paperwork, easier, faster, and more certain to go through if the assessment is off by a few %. I had no idea about this before trying to buy a property in New England. So much of traditional advice doesn't include these details. What's weird about it to me is that this is one of the few places in US consumer markets where the seller cares deeply about your method of purchase and where the money came from. Buying a used car? They don't care if it's cash, credit, loan, etc generally. Hell, most car dealers want you to use a loan from them and would prefer that over cash in many ways. When you go to WalMart, they don't deny you buying something for using a credit card vs cash.

SoSoRoCoCo 6y ago
> this is one of the few places in US consumer markets Did you mean geographically? Or temporally? because if the second, I'm pretty sure that is a direct legal consequence of the 2008 housing meltdown that boned both sides of the lending equation.
- jedberg 6y ago
  Even before 2008 it's an issue. I bought in 2008 and cash offers were still preferred over 20% down, which was preferred over less than 20% down. It's because when you make the purchase agreement, the buyer can get a bunch of outs, many of which are based on financing not getting approved. The more difficult your financing situation, the more chance there is of it falling though.
ProfessorLayton 6y ago
>What's weird about it to me is that this is one of the few places in US consumer markets where the seller cares deeply about your method of purchase and where the money came from. Often times sellers are trying to buy another home and have put a contingency offer (depending on the market) on another home, so they're heavily incentivized to accept an offer that moves quickly so that they can close sooner. A tiny bit more money may not be worth the risk of having multiple deals fall though, hence all-cash offers and traditional loans being more attractive. With that context, it's no wonder why sellers care so much about the method of buying.
- ryandrake 6y ago
  When I was house shopping almost a decade ago during the latest seller's market frenzy, there were several cases where our offer (needing financing) was by far the highest dollar amount, but we lost out to someone offering less in cash and no contingencies. We put offers out on dozens of houses, and always got beaten by an all-cash buyer. Our agent urged us to consider no contingency offers in order to give us a fighting chance against all the all-cash buyers.
lotsofpulp 6y ago
>What's weird about it to me is that this is one of the few places in US consumer markets where the seller cares deeply about your method of purchase and where the money came from. It's not weird at all. Buying a car or TV from Walmart with a credit card does not carry anywhere near the risk of the transaction failing that buying real estate does. It's simply a function of the probability of the transaction succeeding (or "closing" as it's commonly referred to). With a loan, there are multiple parties whose requirements need to be met, from the lender, the home insurance, the title insurer, the seller, etc. The more entities you cut out, the less chance of the transaction failing. Underwriting a car is also much more simple and less risky for a lender than a house, which has much higher downside risk and unknowns. Not to mention the myriad laws resulting in legal liability and opportunity costs relating to real estate purchases, as opposed to a car purchase or a TV purchase where the worst that can happen is the seller takes it back and sells it to someone else.
eli 6y ago
The buyer can just waive the financing contingency. To the seller that's almost the same as making a cash offer.
- nrmitchi 6y ago
  I mean, not really. The financing contingency means that if your financing falls through, you get your earnest money back. Assuming a 500k purchase with 1% earnest money, waiving the financing contingency means that the seller receives at least 5k. Even with a financing contingency waived, if the buyer has 100k, and their financing falls through, there is no way for them to magically make 400k appear for the sale to happen. If you are assuming that the buyer has the full purchase price in cash anyways, and are only taking a mortgage because rates are so low, then ya, your point stands (waiving financing contingency along with proof of funds). But lets not pretend that having cash to cover the full price of the property is the common situation.
- foogazi 6y ago
  Higher risk for the buyer if financing falla through Also not a guarantee for the seller - but they’ll get to keep the deposit
polygotdomain 6y ago
This 1000%, I sold in March right at the beginning of the pandemic in an incredibly competitive market. The final buyer was determined by the specifics of their offer, not just their final price. FHA with 3.5% down just adds additional risk for closing that 20% conventional doesn't. That risk is minimal, but it's a risk the buyer doesn't have to take. I'll also add that in competitive markets you also get into a situation where it's a bidding war and you're pushing what the property might appraise for. If you're doing 3.5% down, even though you might be approved up to X, the bank may not be willing to stretch the appraisal for the property. With 10% or 20% down, that's less of a concern. Also FWIW, for new cars, how you pay does matter. The dealer makes money on the financing, so they will give you a different cash price vs if you go with their financing. The reason being is that they want to sell you a "zero percent" loan that effectively bakes in the interest up front, so their financing will look better, but the final price will be higher.