mortgage approval

[Case Study] Like-cash loan program benefits almost every homebuyer

Bethany RamosAbout Cornerstone, First-Time Homebuyer, Getting Prequalified, Home Buying, Homeowners, Loan Officers

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Do you need to buy a house in cash if you want to compete in today’s fast-paced market? While a cash offer may be the strongest offer, some specialty mortgage approval programs work the same way, benefiting the 87 percent of buyers who can’t afford to make a cash buy.

Case study summary: Buyers want to make a better offer without paying cash

  • Eighty-seven percent of recent homebuyers financed their purchase. Meaning, almost all buyers took out a mortgage instead of paying for a house in cash.
  • A cash offer provides a better upfront proof of funds — and proof of a buyer’s ability to close. Still, the majority of buyers can’t afford to make one.
  • Low- and no-down-payment loan programs can help minimize the amount of upfront cash needed to buy a house. Only 39 percent of Americans have enough cash on hand to cover $1,000 in emergency expenses.
  • Cash quadruples the chances of winning a bidding war in a competitive market. But buyers who go beyond the standard home loan preapproval before ever house-hunting can have a “cash-like” advantage.

The challenge: Non-cash buyers aren’t getting enough attention

We’ve always been honest with our borrowers about the fact that cash is king when it comes to real estate. But we got tired of seeing borrowers miss out. Dream houses were being lost as sellers gave preference to cash buyers in hot markets.

We can’t do much about how much cash our borrowers have access to, but we do have total control over their mortgage experience. Sticking to our mission of transforming individual lives through lending, we went back to basics to come up with a solution.

How can we make buying a house easy in all possible scenarios, including competitive markets where more sales may be made in cash?

Figuring out how to make buying a house easier when faced with stronger cash offers was critical since it affected our borrowers. Finding a “like-cash” solution impacts 87 percent of all homebuyers — because only about 13 percent of buyers are paying in cash.

The Early Bird gets the dream house. Prequalify now.

The solution: Give borrowers the power of a cash buyer

The only way to make a non-cash offer stand out is to ensure it’s the most attractive. Without cash to seal the deal, pushing a loan through all three stages of the approval process — prequalification, preapproval, and underwriting — offers our borrowers the next best thing. This full loan approval is completed before a buyer ever starts house-hunting to prevent time and money from being wasted.

While mortgage prequalification is an important first step, full loan approval is different from getting prequalified:

1. Prequalification gives borrowers an idea of how much house they can afford.

It normally takes about 15 minutes.* And, it can be done online, through an app, or even on-site at a model home using a kiosk. Once a borrower knows how much they can afford, they can house-hunt smarter and avoid time-waste. It’s an essential first step, but getting prequalified only offers a ballpark figure. This number isn’t enough for borrowers who want to put down a serious offer on a house.

2. Preapproval is the second stage of loan approval that takes borrowers a step further.

Here, we pull a borrower’s credit. More information about income and assets are collected. If everything looks good, a borrower receives a single-page letter from their loan officer that documents their ability to buy. Having a preapproval letter in hand is helpful to gain a seller’s attention, but it’s still not the same as a full loan approval that works close to cash.

3. Full loan approval gives a borrower complete approval for a loan amount before they make an offer.

Borrowers who utilize our Early Bird Approval program get total loan underwriting in advance — signing off on income, assets, credit, employment, and down payment amount — to signal to a seller that they’re entirely ready to buy. For most sellers, time is of the essence, which is what makes a “good-to-go” cash offer so attractive.

Fully underwritten loan approval can be as serious as cash:

  • A loan will be locked in advance and ready to close once an offer is accepted.
  • There won’t be any last-minute paperwork since everything’s taken care of upfront.
  • This can be as good as having cash in hand when multiple offers are on the table.

Buying in cash can be a top strategy in today’s hot market, where homes are receiving over four offers on average. But for the majority who can’t afford it, advanced loan approval comes in a close second.

Early Bird Approval helps buyers clear two big hurdles that derail a real estate transaction: cash competition and paperwork delays. Using early loan approval minimizes the chances of losing out to a cash buyer or getting held up by last-minute paperwork that can cause borrowers to miss closing day.

Taking care of all the prequalification details in advance can give borrowers more leverage in any market. More leverage means more buying power, making it possible to buy bigger or in a better location for a lower price.

The results: Early Bird borrowers beat out the competition

Our loan officers call Early Bird Approval a “game-changer.” Full mortgage approval can take the uncertainty out of buying. It can make the entire loan process much less stressful for all parties involved.

Interestingly, our loan officers have seen Early Bird Approval provide a competitive advantage for their team, as well as their borrowers. “From a business perspective, it gives us an edge over our competition. Agents are happy to see our names on a preapproval letter. And we’ve gained some great referral partners due to this program,” one loan officer said.

This stronger loan approval has helped our borrowers win in multiple-offer scenarios. Because of this, many loan officers now aim to use Early Bird Approval for all viable prequalifications.

Our borrowers often tell us that they seek us out based on the value of this early mortgage approval:

  • As one borrower recounts, he chose his loan officer because he could provide a loan that would put him in a much better position when making offers on houses.
  • This loan officer followed through on everything he promised — closing the borrower’s loan in only two weeks, as well as offering guaranteed financing so the financing contingency could be waived.
  • “All my friends and colleagues were amazed at how fast and easy the financing process was,” the borrower said.

We tell our Early Bird Approval borrowers that “your loan’s ready to go when you are.” Once a borrower finds a place they love, their fully-approved loan is ready to close fast. Faster closings are an indirect, money-saving benefit of early mortgage approval that buyers, sellers, and realtors appreciate.

You could be home by now

If you’re ready to be home already, get in touch with a local loan officer and get your Early Bird Approval underway. Make a “like cash” offer. See sellers take notice. Get under contract right away.**

*During normal business hours.

**Early Bird Approval is subject to final Underwriting approval of the subject property appraisal and title commitment.

For educational purposes only. Please contact a qualified professional for specific guidance.

Sources deemed reliable but not guaranteed

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