Interest rates remain low and more people who have the funds to pay cash for a home are opting for financing. How does this decision affect the home buying process? Good question — let’s explore a little.
The old adage “cash is king” still rings true today. A seller would prefer cash over a financed offer for at least two reasons. In Arizona the purchase contract contains contingencies both for appraisal and loan qualification. The house must appraise at the accepted offer price or the buyer can cancel the contract with full earnest money return. They also have the option to increase their down payment but they may cancel and sometimes the seller isn’t willing to take that risk. Secondly the buyer must be able to qualify for the loan. Arizona requires a pre-qualification to accompany the offer however once the underwriting process begins the buyer may not qualify or the lender may require a stipulation that the buyer was not prepared for which again allows the buyer to cancel the contract. Sometimes the buyer qualifies but something unexpected happens before close of escrow which affects the qualification. The third factor is the lender. Often buyers want to use an out of state lender who is not familiar with Arizona real estate law and contracts. The buyer has contractual obligations to provide loan documents and funding within certain time periods or a breach of contract can result. Out of state banks often say that they can meet the close of escrow deadlines but in reality many have caused a deal to fall apart due to inability to perform to the standards of the contract.
All of these factors come into play when a seller is considering offers. We have seen multiples offers on a home and a good real estate agent will advise the seller of the pros and cons of each. With a cash offer the appraisal and loan funding contingencies are not present often making it a more attractive choice. Financing is still a good choice for many buyers because interest rates remain low and likely will not be this low ever again. A professional real estate agent will be able to discuss the best strategy with you and will likely recommend a local lender who is familiar with Arizona contracts and one who has a proven track record of funding on time for a successful close of escrow. Real estate agents do not receive a kick back from the lenders so the recommendation is not motivated by money but rather by the sole reason of a smooth escrow. The right offer and the right lender can make or break your dream home purchase.