Sometimes a borrower feels that the only way they can win a house is to pay cash for it. They’ve been beaten before. They’d found their perfect home, but they just couldn’t compete. Most times you’ll find that dream house again. We find there’s time, that when people do, they don’t want to mess around, they want to pay in cash. They have access to it, but it’s not theirs, rather it’s, say, their parents or a family member’s. They know they need to do something with a loan, but they’re not sure how to go about it. So, they reach out to us and we get the question of how to buy a house with a cash offer while simultaneously getting mortgage financing.
We had this situation come up recently. The borrow that called us had been working with another mortgage broker and the borrower put out because she was wanting to use her mom’s cash to put an offer on a home, but then she wanted to turn around and buy it from her mother. The other broker was basically saying pick one, they didn’t want to deal with two sets of purchase closing costs. We told her they don’t have to. We told her that what we can do is use her mother’s cash, making her mother the lender, and then the day after she closes, we turn around and do a refinance on the loan.
Now, whoever it is that’s going to be buying the house with cash, we want to view them as a private lender. They’re going to put a note and deed of trust on the property, and you’re going to use their funds to buy the house. This will effectively have the same strength as using cash because you will be going through a private lender without layers of underwriting guidelines or appraisal requirements to worry about.
So, start by talking to your lender, make sure you have them on board. Next, if you were talking to us, we’d say talk to the escrow company and make sure that the escrow officer can help you draft a note. They will put a deed to trust. This step is really key. It’s important you have a note with the lender saying how much money they are going to owe you, how much the mortgage is going to be, the interest rate, and term. You want to make sure, as well, that the note looks normal and that it has standard market terms. You wouldn’t want 0% interest or anything that would make it seem out of the normal.
The most complicated scenario of this is if gifting becomes involved. A lot of times not only does a parent or a relative want to help with paying cash, but they also want to give a 10% or 20% down payment. So, one of the questions we’ll be asking you is what amount you want to refinance out. Say, you pay $200,000 for the house and your relative wants to give you a 20% down payment, in that case, we’d only be refinancing the amount of $160,00 and that would be the amount of the loan. The other component would be considered a gift.
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Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.
Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.BACK TO LIST