Because it's likely being sold ``as is'' and loans come with things like appraisals, etc. The seller wants to avoid all that with a cash sale.
Cash offers are appealing to sellers because they eliminate financing uncertainties and potential delays inherent in mortgage approvals. Cash transactions typically close faster and with fewer complications, reducing the risk of the deal falling through.
Yes, there are some potential disadvantages for sellers to consider when choosing a conventional mortgage. First, the seller will have to meet more stringent requirements to qualify for a conventional loan than with an FHA loan, including higher credit scores and larger down payments.
Generally 'cash buyers only' means you won't get a mortgage on it and that could be for any number of reasons. Though could mean the vendor just wants to deal with cash buyers for whatever reason, but this is unlikely.
If you're genuinely interested in the property, it could be a good idea to ask why they are listing it as cash buyers only. For example, they may have inherited the property and wanted a quick sale. You could negotiate and see if they'll accept a higher offer for a mortgage applicant.
Cash-only properties are typically homes that require major repairs or renovations, making them unsuitable for conventional home financing. These properties might be in a state of disrepair, lack essential systems or structures, or have other issues that prevent lenders from offering standard home loan products.
Unfortunately, sellers often perceive the FHA loan approval process as risky because of the FHA's relatively lenient financial requirements and stricter appraisal and property standards.
Conventional conforming loans: 7.6% denial rate. Refinance loans: 24.7% denial rate.
When using a conventional loan to buy a house, condominium, or 2-to-4-unit principal residence: If your down payment is less than 10%, the sellers can pay your closing costs up to 3% of the property's purchase price. If your down payment is 10% or more, the seller credit increases to 6% of the purchase price.
The convenience and certainty of all-cash offers appeals to sellers so much so, that they pay on average 10 % less than mortgage buyers, according to a new study from the University of California San Diego Rady School of Management.
The Problem with Cash Offers
The primary reason? Sellers are reluctant to accept offers that significantly undervalue their properties. Even with distressed properties, owners are often unwilling to sell for “pennies on the dollar.” "Even if their property is falling down, they still are not going to give it away."
While accepting a cash offer for a house does have its advantages for sellers, it may help to also consider some of the drawbacks that might come with it. For example: Potentially lower price: Buyers who are ready to pay in cash tend to offer less for a property than those who aim to finance a purchase with a loan.
A homebuyer who makes a cash offer intends to pay in full, with no mortgage or other type of financing. Cash deals are more appealing to sellers than financed deals, because they close faster and are less risky.
In most cases, putting an offer in on a contingent home is an option to consider. Although it doesn't guarantee you'll close on the home, it does mean you could be first in line should the current contract fall through. Putting an offer in on a contingent home is similar to the homebuying process of any active listing.
You can usually close on an all-cash sale in one to two weeks, but it could take longer. The final number will depend on how long each of the following steps takes and how quickly you resolve any problems that come up. You and the seller agree on a price.
Can My Security Deposit Be Returned If My Mortgage Is Denied At Closing? If you have a contingency in place that includes an offer and purchase contract, you may be able to get your earnest money back. However, if you don't have it, you could lose it.
While conventional loans allow you to make a slightly smaller down payment of 3%, you must have a credit score of at least 620 to qualify. When you're deciding between a conventional loan versus an FHA loan, it's important to consider the cost of mortgage insurance.
Drawbacks include stricter requirements to qualify, large payments if market rates increase, lack of 5% equity requirement, and additional fees if borrower has a less than excellent credit score.
Some reasons a seller might refuse an FHA loan include misconceptions about longer closing times, stricter property requirements, or the belief that FHA borrowers are riskier.
Since your home must meet FHA property minimums, the appraisal process may include more requirements than a conventional home loan. The appraisal is required to be performed by an FHA approved appraiser and may have additional inspections which could result in a higher appraisal cost.
Must have an undamaged exterior, foundation and roof. Must have safe and reasonable property access. Must not contain loose wiring and exposed electrical systems. Must have all relevant utilities, including gas, electricity, water and sewage functioning properly.
All cash is better because there's less risk
For sellers, the fewer contingencies the better and no contingencies is ideal. Particularly now, when we are seeing a very sudden and dramatic upswing in pricing, appraisal contingencies can kill an offer's chances of success due to the fear of a low appraisal.
Take Out an FHA 203(k) Rehab Loan
A government-backed loan called the FHA 203(k) is an option for homes that require major remodeling or structural repairs. Both new homebuyers and existing homeowners may qualify for this loan. The Federal Housing Administration offers several types of FHA loans.