5 ways to make a cash offer without selling your current home

5 ways to make a cash offer without selling your current home

Buying a House with Cash: Creative Options for Financing in 2023

In 2020, the housing market experienced a surge in prices, with US housing gaining $2.5 trillion in value, marking its highest single-year increase since 2005. This trend of high demand and low supply has continued into 2023, resulting in competitive markets where sellers receive multiple offers for their properties. If you’re eager to buy a new house and want to make a cash offer but haven’t sold your current house yet, there are options available to you. Our real estate experts have put together some creative strategies for financing a home purchase in today’s market.

The Power of Cash Offers

According to an analysis from Redfin, cash offers are four times more likely to win a bidding war. Having the ability to pay with cash gives you a significant advantage in a competitive market. However, for many homebuyers, arranging for the necessary cash can be challenging. That’s where alternative financing methods come into play.

1. Take a loan out of your 401(k)

A first option, as certified financial planner Taylor Kovar suggests, is taking a loan out of your 401(k) account. This allows you to access funds that you have saved over time. There are two possible approaches to this:

• You can take a 401(k) loan, which requires repayment with interest.
• Alternatively, you can opt for a 401(k) withdrawal, which incurs a 10% penalty and income tax from the IRS.

When taking out a 401(k) loan, you are usually allowed to borrow up to 50% of your vested account balance or $50,000, whichever is less. However, it’s important to note that you typically cannot make 401(k) contributions while you have an outstanding loan. Additionally, if you leave your job or get fired before repaying the loan, the remaining balance becomes immediately due, potentially resulting in penalties and taxes. It’s essential to consider the impact on your retirement plan before tapping into these funds.

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2. Get a personal loan from a bank or credit union

If you have a good relationship with a bank or credit union, you may have the option to secure a personal loan from them. These loans are quick to obtain and can bridge the financial gap until you gather the remaining funds necessary for the home purchase. Each financial institution sets its own requirements, such as income thresholds or credit scores, so it’s crucial to check with your bank or credit union regarding their specific loan offerings.

3. Take out a bridge loan

For homeowners who want to buy a new property before selling their current one, a bridge loan can be a viable option. These short-term loans provide financing while you wait for funds to become available through the sale of your existing property or other circumstances. Bridge loans are typically based on the value of the home you’re buying, rather than your credit score or income. However, they often come with higher interest rates due to their short-term nature. Proper research and understanding of the terms and conditions are essential before considering a bridge loan.

4. Get a home equity line of credit

For those who have substantial equity in their current homes, a home equity line of credit (HELOC) can provide quick access to the funds needed to purchase a new home. A HELOC is a secured loan where your property serves as collateral. This option can be an efficient solution for acquiring the necessary cash promptly.

5. Find an investor

If you don’t have the cash to make a direct offer on a house, you can explore the possibility of involving a real estate investor. This strategy involves making the investor a silent partner in your real estate deal, allowing them to contribute the required funds in exchange for equity. When you eventually sell the house, the investor can cash out their stake. However, note that most investors prefer working with individuals who have prior experience in real estate and have a track record of buying and selling properties. Consider reaching out to your professional network for potential investors interested in diversifying their portfolios through this type of investment.

Finding creative solutions to finance your home purchase in a competitive market can be the key to success. Whether through borrowing from your 401(k), obtaining a personal loan, securing a bridge loan, accessing a HELOC, or partnering with an investor, these alternatives provide pathways to make cash offers without waiting for funds from a previous sale.

• Calque offers a guaranteed backup offer that can help reduce risk when buying before selling, increasing your chances of acceptance.

Calque allows you to submit non-contingent offers, eliminating your existing home from your debt-to-income ratio and tapping into your equity to boost your down payment on the next home. With Calque, you can buy and move before you sell, streamlining the purchasing process and reducing uncertainty.

In summary, while cash offers have a higher chance of success in competitive markets, not having immediate access to funds doesn’t need to hinder your ability to make a cash offer. Explore these creative financing options to seize the home of your dreams in 2023.

• homebuying
• Personal Finance Insider
• PFI Freelance