Putting cash offer (funds available) but using financing?

Question

Hello everyone,

I am considering putting all cash offer (I have funds available - read more below), but I will be using conventional financing as it will be owner occupied by myself. Could anything go wrong?.

I found a thread discussed with doesn't cover my scenario.

https://www.biggerpockets.com/...

I have the 30% cash available of property price (and the rest 70%+ are all invested in stocks) but I can sell my stocks to get the cash in 3-5 days (SEC clearing of funds). I am realizing putting all cash offers is a way I can get ahead and avoid competition. I plan to use conventional mortgage because (1) If I sell my stocks, I will need to pay capital gains tax of my stock gains and (2) I won't be able to subtract interest deduction during year end tax.

But, I am wondering could anything go wrong? I mean worst case if lender doesn't approve, I can always sell my stock and get the cash to close the deal. Please advice.

Abdullah Rubiyath · Answer

Offer would be cash and not contingent on financing and that subject would not change. Nothing changes from seller's perspective and contract. I have the liquid but due to historic low interest rate of 2.8%, I would want to use financing since its almost free money and in my case it also involves selling securities to get the cash. If I can't get a lender, i will use my cash as last resort to close the deal.

Brad Hammond · Answer

In my state (Oregon), you need to get the seller's permission to change lenders or the type of loan after mutual acceptance.  If they are counting on a quick close, they probably wouldn't allow you to change into conventional and do a 30-day close.

Craig T. · Answer

@Abdullah Rubiyath

I did this with no issue recently with a business loan on a property. Needed to modify the purchase agreement, but it wasn’t an issue with the buyer as it didn’t delay close. I needed to verify that I had the cash for an all-cash purchase at the time the offer was accepted, which I did in a combo of cash, liquid stocks, etc. (similar to you).

Joe Splitrock · Answer

@Abdullah Rubiyath it varies by state depending on how your standardized contracts are written. Just be careful to set closing out far enough to give you time to close the loan. If people think you are a cash buyer, they may push for earlier closing.

Abdullah Rubiyath · Answer

Thanks everyone. This is great learning for me. I am speaking with my Brokerage and they are offering me securities-based lending. Basically, Line of credit based on my stock portfolio which will give me access to cash anytime at reasonable interest rate which I can use for closing the house and then finance the house.

David A Lisowski · Answer

@Abdullah Rubiyath

Just use cash if you make a cash offer.

If you need the money back, you would do a delayed financing (basically, a cash-out refinance).

You will pay cash and close. Once you own the property you can pull your cash back out using delayed financing.

Be sure to have detailed paper trail of where the funds were sourced, moved, and ultimately paid to to seller.

Ideally, you are paying 80% value of the property in cash. That way you can pull out what you put in (essentially).

Abdullah Rubiyath · Answer

Thanks! I didn’t realize it. I am working with a realtor and was told of such.

Raymond J. Rodrigues · Answer

@Abdullah Rubiyath if you think offering cash so you can low ball sellers is a good idea, why not just make an offer contingent on financing and if financing isn’t an option, you agree to pay all cash?

Doing it the other way around is asking for trouble. Not sure if your intentions are to low ball sellers in hopes that you bait them with cash..

Andrew Postell · Answer

@Abdullah Rubiyath I am very sorry but that is NOT how your contract will read.  It will absolutely change your contract and it will require amendments to change your acquisition of the property.  Even the closing attorney will be required to follow the specific language in the contract and adjust the HUD/CD that both you and the seller are required to sign and notarize at closing.  If you change those terms the seller will 100% know and be required to sign off on it.  Please get with your real estate agent on this right away to verify what I am saying.

Andrew Postell · Answer

@Abdullah Rubiyath I would certainly have a problem if someone gave me a cash offer and then changed it to an offer contingent on financing.  Your initial contract usually has protections in place for you when you have financing. If you do this method, you will not have any of those protections.  And your "all cash offer" will have to be changed to an offer with a financing.  I would certainly lean on your realtor's opinion on this matter but if I were the seller I would be extremely upset by this and think heavily on terminating the contract and keeping your earnest money.

Putting cash offer (funds available) but using financing?

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