Is Hard Money Offer a Cash Offer?

Question

Hello All,

We are investors in the Houston area and have just begun making our first offers. We will most likely be using a hard money lender and have a question on how that is considered when writing up the offer. Our realtor asked how much we are "putting down" and how much we are financing. The hard money loan will cover the entire price of the house, and some of the rehab, so would this be considered a full cash offer? Or do we still have to list as financing?

Thanks in advance

Craig

J Scott · Answer

In my experience, sellers know very little about financing, and won't know/care about the difference between a conventional loan and a commercial loan.

As for a way to communicate to them that you would be able to close sooner because of it, that's easy -- just agree to close sooner.  If you say you'll close in a week and everyone else is saying a month, the benefit will be obvious.

Wayne Brooks · Answer

No, it is Not a cash offer.  A "cash offer" means the Buyer has the cash (not his lender) in a bank account, in the Buyer's name.  The POF from a lender means nothing, if he won't lend it to the buyer for this particular deal.  You can get a preapproval from your HML, but expect to be scrutinized more than a buyer with 1) actual cash, or 2) a preapproval from a traditional lender.  I realize that most rehab projects won't qualify for traditional lending.  But you must also realize that All of the offers I get from Wholesalers have some BS "POF" from some supposed lender, either supposedly local or that exists only on the Internet.  Since wholesaler offers go straight to the trash, you don't want to look like one with your offer.

Jeff Greenberg · Answer

Yes, the hard money lenders I know are perfectly willing to show proof of funds.  I would tell them that is an all cash offer.  That is one of the advantages of a HML

J Scott · Answer

I could hand you a copy of my bank statement and tell you I'll fund your deal.  But, that doesn't mean you'll actually get the money come closing day.

Likewise, when you say you're getting a bank loan, the seller isn't concerned about the bank having access to the cash to fund you -- they're worried about whether the bank will ultimately fund you or not.

Unless the money is yours and you have full access to it at any time, it's a financed offer -- there's always something that can happen when you're getting the money from someone else (they could go out of business, they could die, they could change their underwriting criteria, they could change their mind, etc).

Ben Hughes · Answer

Totally agree with that.  I tried to rationalize it when I first started too.

Andres Jaramillo · Answer

Hi Craig K. ,

It all depends how you look at it. Yes it is like a cash offer as it appears that way on the HUD, but there are things that can go wrong like with any conventional financing that would hurt your financing and your deal to fall thru. First thing would be to contact your HML and see if they would be willing to show proof of funds so you can have that as an option and than go from there. Hope this helps.

Andres J.

Richard C. · Answer

Depends on the market.  In a hot market, an offer with a financing contingency is less likely to be accepted.

Mark Gallagher · Answer

I think the point of why someone would make a "cash" offer but use a HML is being missed here. In PA on a Realtor contract, you can make the contract not contingent on financing. If you do that, you will forfeit your deposit if the HML does not end up closing. Combined that most will want 10% deposit if making a "cash" offer, is the reason to make it a financed offer.

If you go the financed route, you'll likely be able to keep your deposit lower, and make it refundable if you can't line things up with the HML a week from closing.

Is Hard Money Offer a Cash Offer?

Most Popular Reply