Traditional mortgages aren’t enough, you need cash to buy a home
Cash is king when it comes to purchasing a home. According to research from RedFin, all-cash offers increase homebuyers’ chances of getting a home up to 290 percent. There’s some serious fire power behind all-cash offers, especially in a hyper-competitive market with limited supply. When the average Utah home gets sold in six days and receives multiple offers, it only makes sense that someone would use the cash to get an edge.
The problem is, not just anybody has that kind of cash on hand or in the bank and these are the buyers missing out on their dream home in the current market. Add to the mix the worry of institutional investors like Blackrock using their cash to buy up more inventory, making it harder for the average American to buy and forcing more people to rent, and it’s the perfect storm against first-time buyers.
But it’s not the full story. While it is true that investors are contributing to low inventory levels in Utah and elsewhere (they make roughly 20 percent of real estate purchases nationwide), only about half of investors use cash to pay for their investment properties, and that number hasn’t changed much in recent months. If anything, a smaller share of investors buy with cash now than they did several years ago.
The increase cash-only offers is largely driven by wealthier, older individuals who have the equity to forgo a traditional mortgage. No one’s pointing fingers at these individuals for “ruining” the market; they’re just people using what they have to get what they want. But how does the everyday person compete when investors, institutions, and incomers make the market more difficult? Will Californians flush with cash be the only ones winning when they move to less expensive real estate markets?
Not anymore. At Homie, we’ve been hard at work developing a program for Utah homebuyers who wouldn’t otherwise be able to afford a cash offer. Homie Cash is a new service offered by Homie Loans that allows homebuyers to upgrade their offer to cash. Here’s how it works: Homie Loans advances a cash loan to a qualified buyer. The buyer uses the cash to purchase a home. Shortly after closing, the buyer refinances the loan into a long-term mortgage. The seller gets a quick close with no finance contingency, and the buyer gets a home and a mortgage. Everybody wins.
That all looks good on paper, but will it actually work? We’ve already seen cash make a difference for several early Homie Cash buyers. One buyer looked at more than 20 homes and made three traditional offers well over asking price. They tried the traditional route for a month and got nowhere. The first cash offer they made was accepted. In their case, the cash helped seal the deal, and I expect cash will be what makes or breaks buying a home for many buyers in today’s market. In fact, I strongly believe that other Utah companies will start offering similar services soon.
Given all of this, it’s no surprise that cash will play a big role in the real estate transactions of the future. The way things are going right now, it may be the only way to get a home in increasingly competitive housing markets like Utah. Without access to cash, most people will get locked out of homeownership. So we’re putting cash into the hands of qualified homebuyers. And hopefully, that cash will be the key to unlocking home ownership for years to come.