How to write an all cash offer but still use lender financing?

Question

So I have a personal accout with navy federal, and they offer some very low down, low interest rate terms for owner occupied loans.  I want to rent out my condo in downtown San Diego and purchase another downtown condo to live in.  I want to write an offer on a unit i saw today that has multiple offers, I’ve heard Brandon Turner on one of his podcasts mention writing all cash in his offers, but then using lender financing instead.  How can I word this in the offer to make mine stand out and look stronger than others, but then use lender financing to get it done?  I know i want this unit for sure and i know i can get the lending no problem.  Something to note:  I am also in contract on a commercial property in Louisville at the moment, this will be my first commercial loan, and we’re set to close May 6th.  Should I give my commercial lender a heads up I’m going to purchase a second condo or do you think it’s better if they don’t know?

Travis Nagler · Answer

Hi,  Rich.

If you are using a CA- licensed Realtor, they will be using a CA BRE residential purchase agreement form. On the is a check box that says you will be making an all-cash offer with no lender financing needed.  That was put on the form a few years ago specifically because people were saying it was an all- cash offer but having to get loans. Basically,  people were lying and sellers got sick of it.

If you're not using a realtor,  you can put whatever you want,  I would guess.  But you wouldn't be able to put in any contingency for getting the loan. So if the loan didn't come through,  or for that matter took longer than you have said for a closing date,  you would have no recourse for getting out of the contract based on that.

Also,  what are you going to show the seller for proof of funds? In California,  it is usually requested,  same reason now as the all-cash offer deal. People used to say sure,,  I got it in my pocket. Than not close the sale because they didn't qualify,  etc.

Lastly,  not telling your commercial lender is not a good idea. In residential lending,  people are told not to buy ANYTHING on credit until they close on the house,  because it changes FICO scores and DTI ratios. I will say I'm not sure about commercial lending since it's usually not based on your personal credit,  but something you might not want to risk.

Feel free to do what you like, but I personally would not suggest that course of action in California. Just a lawsuit waiting to happen.

Travis

Mike Dymski · Answer

Having all cash to close but then using financing is fine.  Not having all cash to close and writing an all cash offer is a lie (and proof of funds will be required).

Joe Splitrock · Answer

I just purchased a property that was not subject to financing, but I did finance it. The offer was written as cash or financing. I waived financing contingency. I have a HELOC line of credit that I could have used to purchase the property. The line of credit is the same as cash in the eyes of the seller. The reason is because my ability to get that money is not tied to the property I am purchasing or secured against it.

In my case, the HELOC lender will send a proof of funds letter if needed to verify the cash. Or I could simply write a check against my HELOC into my bank account and the cash would be there.

In my example here, although my offer was not contingent on financing, I ended up financing and the seller didn't care because we closed when promised. Had something fallen through with the financing, I would have just used my HELOC line of credit to close the sale.

Jason D. · Answer

@Rich Somers if you're having to "raise private capital" you dont have the cash. Closing the loan would be contingent upon raising the capital. You will likely have to show your bank statements with enough cash to purchase in order to submit an honest, all cash offer.

Damaso Bautista · Answer

I was thinking more on the lines of what @Mike Dymski said:

Submit all cash offer with bank statement showing you have the cash on hand to close.

Josue Vargas · Answer

If you have all cash available, I don't see why you can't offer an all-cash offer then use a Lender.  It may be smart that your offer includes both, show you have the cash, but also say you can look for a lender.  The seller, however, may think you can close very soon, so take that in mind.

Dylan Vargas · Answer

@Rich Somers Welcome! I believe honesty is always the best policy. I would simply get a pre approval letter and proof of funds letter. You can also attach a letter stating how and why you really want the home in your offer. Add personal things that may persuade a seller to pick you over the other offers. Things like being a veteran etc. Doing these things can help you be a strong buyer. Also consider hard money or other financing to acquire the home and then refinance out of the loan. Hard money or private money financing is very similar to cash and allows you to close just as fast. Good luck and keep us posted.

Bob Woelfel · Answer

@Rich Somers I don't know if this property is listed or not, but in Kansas City (Kansas & Missouri) there is a place on the board of realtors contract that lists if it's cash or financing and in the financing section there is a place for investment loans.  If you are using private money or hard money or any kind of bank financing then this is typically where that information goes.  When people say they offer in cash and then end up using lender financing it typically means that they actually have the cash in an account and can provide the POF to prove it.  Because of this, the sellers agent knows they have the ability to close and most won't care if they end up getting bank financing instead since if that falls through they will still move forward.  As an agent on the selling side there is no way I would accept a "cash" offer without seeing proof of funds.  Once I know they have that I care a lot less about how they actually buy it as long as they close when they said they would.

Sean Williams · Answer

@Rich Somers Hey Rich, just a couple of thoughts from a Louisville, KY Broker:

1. The purpose of disclosing to a seller how you plan to pay for a property is so that the seller can accurately evaluate the strength of your offer vs. other potential offers. If you intentionally tell a seller cash but intend to use financing, that is called FRAUD. I don't recommend going that route! Also, cash means liquid cash, not HELOC etc. Put yourself in the seller's shoes, I am sure that would light a fire under your a$$ if someone tried to pull that on you.

With that being said, if you intend to actually pay with cash and then circumstances change where maybe financing makes better sense, you CAN change your financing in the middle of a transaction as long as it does not adversely affect the seller. Meaning it cannot change their net proceeds and/or delay closing. If this did happen, it is always advisable to keep the seller in the loop in regards to the change in financing terms and get it in writing...they can't necessarily stop you from doing it, it just can't negatively affect them.

NOTE: all of this partly depends on the contract you are  using, but regardless, deceit is never a good look and will likely cause a long-term ripple effect. Here is Louisville, word travels fast!

2. It is advisable that you let your current commercial lender know about any other deals if the new deal is going to close before your commercial deal. Otherwise I would try to delay closing until your commercial deal is closed. Usually there is some type of form or affidavit at closing stating that "your financial status or position has not changed since you applied for the loan".

Rich Somers · Answer

Thanks for all the advice guys.  I couldn’t agree more in regards to being totally transparent and honest.  So to clear things up: I would be able to raise the capital privately to pay all cash for the condo but then I would have to pull out a mortgage after close to pay back that money.  I found the podcast where they touched on this: it's actually a podcast guest and David Greene mentioned he does it all the time too.  Basically he writes an all cash offer, and also writes an addendum which states: I have the cash available to buy this home, however I might use a private loan or a bank loan to purchase it, but it won't affect the seller at all.  These offers are also with no inspection contingencies.

Anyways, the unit i saw yesterday was an awesome high rise condo in Little Italy (trendy neighborhood downtown) with an ocean view.  The listing agent said they had an all cash offer $20K over ask which was more than I was willing to pay so I passed and seller accepted the offer.

I also reached out to my commercial lender and told him my intentions, he said to hold off till we get a little further in the loan process.  Since this is my first commercial loan, and although my LLC will be on the loan documents, it is a recoarse loan and im personally guaranteeing it with my W2 income and credit score.  So I’ll be patient and wait for another condo until he gives me the green light.  There will be much more inventory to choose from in the upcoming spring and summer months so waiting will actually be the logical thing.

Anyways thanks again for all your advice guys!