How to Get a Mortgage After an All-Cash Offer

Homebuyers looking to buy a home in a competitive area know that an all-cash offer can often win a bidding war. For those buyers who have the resources, cash offers can help close the deal faster in a competitive housing market. A cash offer removes the financing contingency, keeps escrow moving quickly, and always leads to a fast close.

Today’s market is unpredictable. Mortgage rates shift upwards then drop back down, inflation is rising, and the effects of the pandemic are receding ever so slightly. Still, no one knows how things will look in a few months.

For now, mortgage rates are low enough to consider securing a mortgage even if you have enough liquid assets to make an all-cash offer. Here’s why.

Top Benefits of Making an All-Cash Offer

1. All-cash offers give the buyer a competitive edge.

All-cash offers are often a strategic move when multiple offers are put forward on a new home. Paying cash will make your offer stand out and show the seller you’re serious.

Right from the start, the seller knows that you won’t need to secure financing. Financial contingencies are removed along with other common financial hurdles. In short, you won’t need approval from a mortgage lender in order for the sale to go through. 

Related: Find out how much you can afford in today’s housing market

2. All-cash offers give the buyer 100% homeownership and freedom.

Homebuyers who pay cash for the full purchase price of a new home can enjoy living mortgage-free. For many, owning their home outright is a goal that brings security and stability. In addition, enjoying full ownership of your home might give you more freedom in your career and your lifestyle.

Related: How to buy a house with friends or relatives, everything you need to know

3. Owning your home mortgage-free opens up cash flow.

Month to month, you won’t have to worry about the standard chunk of money most people spend on rent or a mortgage. Instead, that extra monthly cash flow can be used for other expenses or to build financial security.

Just remember, even when you pay all-cash for a new home, you’ll still be responsible for property taxes, homeowner’s insurance and HOA fees if applicable.

4. All-cash homebuyers can leverage home equity to invest elsewhere.

Once you own the home outright, you’ll have the opportunity to borrow against it in the future. A homeowner with substantial equity can borrow against their home to pursue other investment opportunities and build wealth. Your home can operate as collateral for other loans or investments.

Related: Compare the benefits of a Home Equity Loan vs. Home Equity Line of Credit

Financing Options After You Make an All-Cash Offer

For some homebuyers, making an all-cash offer is a competitive step to secure the home of their dreams. But many all-cash homebuyers don’t want to tie up their cash permanently with their primary residence.

The good news is that you still have finance options even when you make an all-cash offer. Once escrow closes and you become the new owner, consider financing opportunities.

Option 1: Apply for delayed financing

Delayed financing is a newer mortgage option that makes it faster for all-cash homebuyers to apply for a new mortgage right away. Once escrow closes, you’ll own your home outright and can use your home as collateral for a new loan.

In most cases, borrowers will pay a slightly higher mortgage rate (up to .25 percentage points). Be prepared to provide additional documentation when you apply for your new home loan. Homebuyers can often use delayed financing to borrow up to 70% of their home’s value.

Like most home loans, you’ll need to provide bank statements, verify employment, and also confirm the original source of funds used when you bought your home with an all-cash offer. The mortgage lender will consider your debt-to-income ratio and other risk factors as with any mortgage.

With today’s mortgage rates, borrowing money at a low rate and investing it elsewhere could be a wise move. Just remember, a formal appraisal will determine the fair market value of your home.

Related: Learn how home appraisals can affect your mortgage offer.

Option 2: Apply for cash-out refinancing

Cash-out refinancing is just like it sounds: when you apply for a mortgage through cash-out refinancing, you’re asking for cash and using your home as collateral for the loan. However, new homeowners will face a few limitations even though you own your home outright.

Mortgage lenders typically only consider cash-out refinance loans for homeowners who have owned their home for at least 6 months. In addition, you might be required to verify employment, provide bank statements, and run a current credit report.

As with any mortgage, the lender will consider your debt-to-income ratio along with other risk factors.

Related: Boost your credit score in less than 60 days

Option 3: Consider applying for a home renovation loan

A new homeowner with substantial equity can apply for a home renovation loan to upgrade, update, or improve their new home. There are a number of home renovation loans available for qualified borrowers. Connect with a local mortgage advisor to discuss which options meet your homeownership goals.

Finally, enjoy the tax benefits of a post-sale mortgage

Mortgage interest and property taxes are tax-deductible in most states across the country. Homeowners with a mortgage can also benefit from tax advantages on any profits when you sell your home in most circumstances. Check with your tax accountant to verify the tax laws in your state and confirm your savings.

RELATED: Learn the Truth About No-Closing Cost Loans

Summary

Years ago, homeowners dreamed about paying off their mortgage and living debt-free. But using a mortgage to borrow money at a low rate be a fast path to financial freedom.

The right mortgage can help you leverage low-interest rates to invest in securities, buy a second property, or start a new business. What’s more, there are financial and tax advantages in carrying a mortgage on your principal residence.

In general, homebuyers with enough cash to buy a home outright can still decide to get a mortgage. The deciding factors are often based on lifestyle choices, financial goals, and personal values.

Taking Action

If you’re considering making an all-cash offer on a new home, now is the time to take action. Delayed financing can secure a low mortgage rate, and home loan terms are favorable for qualified buyers. Connect with a local mortgage advisor to discuss your goals. The right mortgage can help you build financial security and help you build wealth. We’d love to help.