Upfront underwriting: How to make an all-cash offer without the cash

Homebuyers are doing all kinds of things to make their offers stand out in this supply-starved market, from removing contingencies to bidding way over the asking price. One tried-and-true technique for making a competitive offer on a house remains popular as well, and that’s the all-cash purchase.

Now, here’s a little secret. Believe it or not, savvy homebuyers can essentially make a cash offer even if they’re planning to take out a mortgage. You just need to find the right lender to help you get everything in order. Keep reading to learn how to make a cash offer without cash using tools like upfront underwriting and cash-offer companies.

What is an all-cash offer?

First, the basics. A cash offer is (usually) exactly what it sounds like: It means the buyer plans to pay all-cash for the home they have put an offer on and can prove they have the funds in the bank to do it. Cash offers usually mean a more streamlined process for both buyers and sellers, and many sellers prefer to take unfinanced cash when it’s an option.

Buyers who plan to take out a mortgage, however, represent more risks to the seller.

“They’re taking the house off the market because it’s now under contract, therefore they lose a potential two weeks if the buyer doesn’t get approved,” says Jaad Nicholas, senior mortgage banker at Ameris Bank and former vice chairman of the mortgage committee for the Asian Real Estate Association of America.

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The less financing involved in a real estate deal, the more favorable a seller’s view of the offer will usually be, he adds.

“What’s happening in this market is sellers are basically running the market because there are so many buyers and not enough homes to purchase. The sellers are starting to take the cash offers,” says Nicholas. “They’re taking those and they’re putting them at the top.”

How to make an all-cash offer without cash

While it’s true that sellers often prefer all-cash offers, it doesn’t necessarily mean you can’t compete in this frenzied market even if you still need a mortgage. Let’s talk about how to make a cash offer without cash.

“There are some ways you can use a loan and still be considered a cash offer,” says Nicholas. “The most common way — what we offer at Ameris Bank — is a decision-now approval.”

It’s not exactly the same as cash, but it’s almost as good. Decision-now approval, also called an underwritten preapproval or upfront underwriting, means the loan has already been funded and the lender has verified that the remaining portion of the sale price is accounted for. That means the buyer can more comfortably remove financing contingencies from their offer without worrying about losing their earnest money deposit. Their mortgage is already secure.

Upfront underwriting explained

One way to make a cash offer without cash — upfront underwriting — can help streamline the closing process and also make nontraditional homebuyers more attractive candidates in a sale. Upfront underwriting essentially means you go through the entire process of applying and getting approved for a mortgage before you make the offer on the house.

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“It takes someone who may have been risky and it turns them into a super-strong buyer,” says Nicolas. “For example, I did one for a client who just graduated college and has only been working for a year. It took someone who would have been an iffy client and turned them into someone almost as good as a cash buyer.”

All this said, upfront underwriting isn’t offered by all lenders (more on that below). You might also want to explore cash-offer companies if you want to figure out how to get a loan to buy a home with cash. In this situation, the company purchases the house on your behalf with cash. You then arrange financing and buy the house from the company, usually with some sort of fee involved.

Which lenders offer upfront underwriting?

Not all lenders offer upfront underwriting. As a result, shopping around is even more important if you think it could be the right product for you.

Aside from Ameris Bank, some smaller mortgage lenders and brokerages offer upfront underwriting. Larger institutions like Chase or Wells Fargo tend to favor the traditional mortgage application process because underwritten preapprovals can clog their already-busy pipelines.

If you’re having trouble finding a lender that offers upfront underwriting, a mortgage broker should be able to help you.

Alternatively, you can look into cash-offer companies including:

  • Ribbon Home
  • Homeward
  • Opendoor’s cash-backed offer program
  • Accept.inc
  • Homelight Cash Offer

Just be advised that buying with a cash-offer company generally means paying them a fee, adding to the cost of homeownership.

Buying a house in a seller’s market

If you’re ready to buy a house and are worried about the competition, there are a few strategies that could help you along the way.

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First, it’s a good idea to work with a trusted Realtor and mortgage lender that can make sure you’re getting the best deal, says Nicolas.

“The number one piece of advice I would have is get preapproved with a trusted mortgage professional,” says Nicolas. “Number two, make sure you’re partnered with the right buyer’s agent. If they have the right team, they’ll get under contract quickly.”

You can also check out Bankrate’s guide to buying in a seller’s market. The top strategies include:

  • Being ready to move fast when you find a house you love
  • Going through the full underwriting process before you make your offer
  • Making sure your offer is aggressive enough to stand out — but not too expensive for you to afford