Show Me The Money: How to Finance Your Home Purchase and Compete with All-Cash Deals

by David Hall, Menlo Park, Stanford, and Palo Alto Specialist

Home sales in Silicon Valley continue to be fast-paced and competitive with multiple offers and quick closings being the norm. Buyers who need to finance their home purchases are often competing with cash buyers who have a clear advantage for a quick closing without a financing contingency. So, how can you level the playing field and still buy your dream home with traditional mortgage financing?

Buyers typically obtain a pre-approval letter from a lender after providing documentation confirming the buyer’s income, assets, and credit history. Unfortunately, the standard pre-approval letter usually includes language that protects the lender and diminishes the value of the pre-approval from the seller’s perspective. Here’s an example:

“After reviewing your credit information, we have determined that your credit meets our requirements to conditionally approve you for a loan subject to the conditions below. This is not an offer or a commitment to extend credit, and is subject to approval of all conditions required by our underwriter.”

But don’t despair! You can still compete by following two simple steps.

First, meet with a DeLeon buyer specialist to discuss your purchase plans. Once we know the type of property you are looking for and your price range, we can help you find a lender that can provide a solid pre-approval letter subject only to appraisal and insurance requirements. Second, plan ahead and prepare an organized submission package for your lender that includes all of the information the lender needs to approve your loan. Here’s the typical list of required documents, along with some helpful tips:

• Provide federal tax returns for the most recent two years, with all pages and schedules.

• Provide bank statements for the most recent two months from all accounts that will be used as sources of funds for the purchase.

• Asset statements like IRAs, 401-Ks, and brokerage accounts can be used to satisfy lender requirements for down payment and reserves, so you will need to provide statements from the most recent two months, or the current quarterly statement.

• Remember that you will need to explain any recent deposits. If possible, make your bank transfers and account consolidations 90 days before you submit your bank statements to the lender.

• If your down payment includes gift funds, a loan from a 401-K, or incentive stock option plans (ISOs), talk to your lender in advance and find out what additional documentation is required.

• Provide two months of pay-stubs if you are a W-2 employee, and also provide an HR contact (phone and email) for verification of employment.

• If you own a business, are self-employed, or are looking for an asset-based loan, then you will need to provide additional documentation to support your loan request.

• If you have complex tax returns for C corporations, S corporations, LLCs, or partnerships, your CPA can often upload the documents to a secure portal and give your lender password-protected access.

• If you are a homeowner, provide a current property tax statement and homeowner’s insurance statement.

• Remember to keep all of your monthly revolving credit payments current, don’t close any accounts, and hold off making any big purchases until your loan has funded.

Your goal is to make it easy for the lender to analyze your documents and approve your loan, subject only to the appraisal and insurance requirements. If you are looking to create an even more compelling offer package and you are completely certain you will qualify for financing, consider including some non-refundable payment to the seller. This will clearly demonstrate your level of confidence and differentiate your offer from the others. While there are cases that have held non-refundable “deposits” unenforceable, there are alternative structures that will work, provided the buyers have free access to an experienced residential real estate attorney. Fortunately, DeLeon Realty provides these services to our clients at no additional charge.

In summary, if you are planning to buy a house in 2017 and plan to finance your purchase, you should be meeting with a DeLeon buyer specialist who can help you plan your purchase. If necessary, this specialist can introduce you to a lender who can provide a pre-approval letter that gives you the confidence to waive the loan contingency and compete head-to-head with all-cash buyers.