Question - We all know cash is king. It seems like all banks and other motivated sellers are requiring the buyer to be submit "cash offers." If I don't have cash on hand, is it still possible to get an all cash deal? Does a hard money loan count as cash? Can I buy a home with a hard money loan and refinance afterward?
Answer - It depends. It sure does help to have a lot of cash sitting in your bank account when you are trying to get an offer accepted. All sellers will look at a cash purchase more favorably than one that has a financing contingency. If you are competing with other buyers for a bank owned property, they will definitely prefer a cash offer.
A hard money loan is where an individual or business gives you a loan, typically based on the quality of the deal, not the credit worthiness of the buyer. These are short term loans, usually a year or less, and come at a higher interest rate than conventional financing. These can be great bridge loans to get a buyer in possession of a property so long as that buyer has options out of the loan at some point. A great use of a hard money lender would be on a property that need a ton of work. These properties are not usually able to be financed with traditional financing, but a hard money lender will give you the money to buy and rehab the property. Once it is rehabbed, you can either sell the property and pay the lender off, or you can refinance it through a traditional bank and use that money to pay off the lender.
Hard money loans are still loans, though. If you are buying an REO, they will likely want to see proof of funds in the buyer's name, not just a commitment letter from your hard money lender. The best thing to do if you are trying to make an all cash offer without having the cash is to offer a large earnest money deposit, remove your financing contingency and have your hard money lined up, along with a few backup contacts.