Even with the high-end price tags of luxury real estate in Chicago, it’s not uncommon at all to find buyers snapping up covetable properties with an all-cash purchase. And it’s not just about offering the highest price with cash in hand. Buyers who pay cash often have the upper hand in a multiple-bid situation, since the financing is guaranteed and the sale can close quickly.
So in a competitive market, what’s a non-cash buyer to do? As long as you have the financials to back it up, a jumbo loan is still a great option for luxury real estate buyers. Even when pitted against cash buyers, jumbo borrowers can still bring a strong offer to the table with the right negotiating strategy.
Here are a few steps for jumbo borrowers, as recently highlighted by the Wall St. Journal: 1. Go beyond the pre-approval letter. A pre-approval letter from a lender is a no-brainer when shopping for a home; it shows your able to secure the right amount of financing for the purchase. But they aren’t foolproof. Jumbo borrowers should take this one step further and get a pre-underwriting letter from a lender. This requires a deeper analysis of the borrower’s income, assets and tax returns and therefore holds more weight than a pre-approval alone. It can also help you close a loan in just 14 days, compared to twice as long for a pre-approval. 2. Waive the financing contingency in the purchase contract. This is what allows a buyer to walk away from the deal if their loan isn’t approved or if an appraisal comes back higher or lower than expected. This is attractive to sellers who don’t want to deal with a potentially shaky deal. And while they aren’t paying for the home in cash, jumbo borrowers may very well have enough cash to cover any appraisal/loan differences, so they wouldn’t need to back out of the deal. 3. Consider waiving the title or property inspection contingency. This is another part of the contract that lets the buyer walk away from the deal if anything comes up in the property inspection. But that’s not to say you shouldn’t do your due diligence before choosing this option. Buyers can conduct a title search, review a building’s financial history or other research to see if everything is in line. And many luxury buyers plan to make significant changes or upgrades to a home, so you may not even be too concerned with what is there to begin with and won’t require an inspection. 4. Look for cash. See if you can get temporary access to cash by liquidating assets or borrowing against them, then refinance after your home purchase is complete. Even a part-cash offer brings some weight to the negotiating table, even if you still plan to take out a mortgage for the long term. Though, don’t forget about your taxes—cash buyers who plan to refinance need to do so within 90 days of the home loan in order to deduct the mortgage interest on your income taxes. 5. Be flexible with the seller. Does the owner have certain move-out terms? Accommodating any special requests from the seller can make your offer even more attractive, so be sure to communicate any extra factors like this in your offer.
Above all, it’s important to work with an experienced real estate agent who has successfully won deals for borrowers in multiple-bid situations. Like I said before, it’s not always just about who is bringing the highest price, but who is bringing the right price on the right terms.
There are a number of nuances involved in this process that I would be happy to walk you through if you’re considering purchasing luxury real estate with a jumbo loan. Contact me at (312) 498-5080 or email me at [email protected].