Cash Is King Program - Mortgage Lender as Cash Buyer?

By
Mortgage and Lending with AmeriFirst Financial Inc, San Diego, CA NMLS 259027

The underlying principle of economics is Supply & Demand.  As it pertains to the current Real Estate Market, we have a high demand of Home BUYERS chasing a low supply of available Real Estate properties for sale. The impact of these logistics creates leverage for the Home SELLERS.

When Home SELLERS have the upper hand, property values go up (as multiple Home BUYERS tend to get into bidding wars, which subsequently drives the price up for that home while creating a new baseline for future property values in that particular area).

In addition to higher prices, many of the Home SELLERS (and the Listing Agents representing them) tend to place more scrutiny on the quality of the Home BUYER whose offer they accept.  Examples of additional scrutiny are:

  • Shorter escrow periods (closing escrow faster)
  • Larger Earnest Money Deposits (to show higher perceived levels of good faith that the Home BUYER is serious)
  • Appraisal Gaps - a term that refers to the anticipation that the actual purchase price will be higher than the appraised value (and proactively addressing this issue so that the Home BUYER does not cancel the escrow when the appraisal comes in low)
  • Refusal to do repairs (indicating that the property is being purchased "as is" rather than the Home SELLER agreeing to do any repairs)
  • Unwillingness of the Home SELLER to provide any credits towards the mortgage related closing costs to Home BUYER (Buyer requests for these credits almost assures their offer will not be accepted)
  • Misperception that "higher down payment" equates to "higher probability of getting a mortgage loan" (sadly, many low down payment Home BUYERS who have a clean mortgage pre-approval are being overlooked solely based on this dynamic). 
  • Refusal to sell to "Contingent Buyers" (see below for details)
  • CASH IS KING - Let's face it, in the eyes of the typical Home SELLER (and Listing Agent), the CASH BUYER will be easier to close.

An unfortunate unintended consequence to this type of market is the treatment of Contingent BUYERS amidst home sale negotiations.  Let's say for example that these Clients wish to sell their current home (Property "A") and purchase their new home (Property "B") as soon as Property "A" sells.  In other words, they are buying "B" contingent on "A" selling first.  Typical reasons for this dynamic are:

  • Debt-to-Income (DTI) Ratios - Clients cannot qualify with BOTH the "A" and "B" housing payments when calculating their DTI Ratio cashflow calculations
  • Funds-to-Close - Clients need the profits from Property "A" in order to put the desired down payment on Property "B".

In this current housing market, it is often safe to assume that selling "A" will be fairly easy.  Unfortunately, convincing a Home SELLER on Property "B" is very difficult (as the SELLER on "B" knows nothing about the BUYER on "A").

PEOPLE ARE STUCK!

When Contingent BUYERS cannot get their offers accepted, they often hold off on selling their "A" property, as they fear the following:

  • Being forced to overpay for Property "B" (due to getting in bidding wars high enough to convince the Home SELLER on "B" to allow the Home BUYER to purchase this home "Contingent")
  • Being forced to move twice (getting pushed out of their Property "A" then being forced to live somewhere temporarily while they seek their ultimate Property "B" as a Non-Contingent Buyer)

POTENTIAL SOLUTION - CASH IS KING PROGRAM

For Home BUYERS who are approved through the PROTECT YOUR TRANSACTION (PYT) approval process, AmeriFirst Financial Inc. (AFI) is offering the CASH-IS-KING program.  While several variations and details exist, below is a "sample scenario" to help you understand how to utilize CASH-IS-KING now that we have reviewed the economic dynamics which necessitated this program be made available.

SAMPLE SCENARIO

  • Contingent Buyers (need to sell Property "A" in order to buy Property "B")
  • Buyers have successfully completed the Protect Your Transaction (PYT) process and are fully approved
  • Client wishes to purchase Property "B" for $700,000 (but prefers to be viewed as a CASH BUYER rather than an CONTINGENT BUYER)

The above example where CASH-IS-KING might prove to be a viable solution.  In this particular scenario, AmeriFirst Financial Inc. (AFI) may emerge as a CASH BUYER on behalf of our Client. 

By no means is CASH-IS-KING a solution for every Buyer/Borrower, but we have found this program is helping many Buyers get "unstuck" when seeking a Contingent Purchase (selling "A" in order to purchase "B").

CASH IS KING FOR NON-CONTINGENT BUYERS

Cash Is King can also be used for Non-Contingent BUYERS!  Imagine a First Time Homebuyer (FTHB) who continues to lose out on properties because they have a low down payment.  We are finding solutions to help this population of Home BUYERS.  Since there is no Property "A" to sell, we are often able to simply lock down the property as a CASH BUYER, then assign the contract to our Client without having our Client incur any additional fees (since we never actually "let go of the money").

As with any program, there are several variables at play which may impact who is eligible to access Cash Is King (and under which specific terms).  The above referenced information was provided for sample purposes only and does not constitute an offer to lend, or an assurance that every Client will be approved. For more information and/or for a specific scenario analysis, please contact me directly.

Comments (1)

Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets
Big Block Realty 858.232.8722 - La Jolla, CA
& Host of Postcards From Success Podcast

I'm excited for this program my friend, I've already referred you two buyers for it.

Great idea; looking forward to working it for our buyers. 

Jan 31, 2022 06:21 PM