Cash Doesn't Have To Be King

But hope isn’t all lost. All-cash buyers making up a sizable portion of the market means that mortgage professionals can approach them from another angle down the road: home equity lines of credit (HELOCs).

“Cash buyers, like any homeowner, can open home-equity credit lines as long as they are willing to pay the HELOC interest rate. They will, of course, have more equity in their properties than owners who have mortgages, so they can take out larger credit lines,” Barber explained. “But there would seem to be nothing preventing a cash buyer from using a HELOC if they want to finance improvements in a home or need money for some other major expense.”

Another Angle

Even though the common phrase is “cash is king,” some lenders are promoting programs to allow their customers to be on equal footing. Thrive Mortgage’s CEO Selene Kellam says that its Home 2 Home program offers an alternative to all-cash buying. “To qualify, we look at if you have a departing residence and how much equity a customer has and their credit qualifying aspects,” she explained. “So this way, a buyer can qualify for a new residence before the sale of their departing residence goes through.”

Kellam said that Thrive provides a “short-term, 100% purchase money loan” that is converted after the departing residence is sold.

“We really saw a need for this back in 2019 with the rise of iBuyers,” Kellam said. “Now, LOs can present this as an option to their pre-approved buyers, especially in more competitive markets where they might need stronger offers. It allows [the buyer] to make an offer like it’s all cash.”

But ready buyers with stacks of cash may be the barrier to regular borrowers looking for loans.

“There probably is not much loan officers can do unless they are able somehow to offer much better terms to potential purchasers — usually investors — who already have enough cash to buy properties without loans,” Barber said. “Cash buyers would seem to be a different group altogether than traditional buyers and not interested in financing purchases because they already have a lot of ready cash.”

Watch it on The Interest: Cash Doesn't Have To Be King

Anthony Rushing, a loan officer at Indiana-based First Savings Bank and first lien loan specialist, says that oftentimes, his customers are all-cash investors looking to use HELOCs to pay off debt. “From an investment perspective, it can serve as another source of capital,” he said. “HELOCs are open-ended by nature, which means that the borrower can really use them to pay off their debt by using their equity. Since cash buyers don’t have pre-existing mortgages, their HELOCs would fall under the first lien category.”

Rushing says that relationships come first when approaching cash buyers and advertising HELOCs. “You really need to understand their goals that come with homeownership and their financial status,” he said. “If you can align a product [like HELOCs] directly with a customer’s needs, it’s a natural transition for them.”

Cash Competition

Like Thrive, other companies are purposely marketing their products to compete alongside all-cash buyers. Deephaven Mortgage, a Non-QM lender, offers delayed financing in order for their main customer base, investors, as a secure way to compete with cold hard cash.

“Delayed financing is essentially a cash-out refinance in all practical applications. It’s the same as if you owned a house for 10 years and there’s a certain amount of equity that you can withdraw from that using a cash-out refinance,” said Luke Turner, Deephaven’s regional sales vice president of wholesale. “Delayed financing means that I have purchased a home using all cash and within a six-month period after buying it, I can pull out a certain percentage of that equity to reinvest into my next project or apply it to home upgrades.”

Turner says that this product is especially helpful for investors looking to buy quick, lower-amount loan properties, such as in a fix-and-flip situation. “It’s giving people lending opportunities for fast transactions,” he explained. “Delayed financing also takes the risk out for buyers who bought with all cash and maybe bit off more than they can chew to reclaim some of their money.”

Turner also said that right now, it’s easier not to be a cash buyer since competition is down. “Homes are staying on the market longer than they were even last year, so not many people need the instant gratification of cash buying,” Turner said. “Delayed financing is almost a better alternative to mitigate risk so a homeowner’s cash isn’t all tied into one house.”