How to Win Multi-Offer Situations: Where Do People Get All of This Cash?

Cash was King in winning multi-offer situations all Summer, which left a lot of my buyers frustrated and confused as to where all of these people are getting all of this cash?? Well, there are a few options available but most of them start with already owning a home with some equity to be utilized.

Option 1: Use a Home Equity Line of Credit for a Down Payment

Many people open a HELOC account and use the funds to pay for the down payment on a new home purchase. By doing so, you are essentially borrowing against the equity of your current home to buy the new one before selling. Let's say your current home is worth $300,000 and you owe $100,000 on it, leaving you with $200,000 worth of equity. You can apply for a HELOC using that equity as collateral, for example a $100,000 loan. The bank will then assess how much your home is worth to make sure you really have $200,000 worth of equity in it and then loan you the money requested at a low interest rate usually to be paid back within 1-2 years before the interest rate goes up. You then buy a new home using that $100,000 (or however much of it you want) as the down payment on the new home and sell the old home. The HELOC is then paid off when your house sells. This can only be done through a regular bank though, not a mortgage lender. It is a pretty simple process from start to finish.

Option 2: Sell Your Current Home and Find a Rental Temporarily

In order to take advantage of the current real estate market, many people sell their current home and move in to a rental either with a year lease or month to month contract. You can then use the money from the home sale as a large down payment for the new home. By paying mostly cash for the new home, it is more likely a seller will accept your offer over others.

Option 3: Gifting

Close family can "gift" you any amount of money to use towards the down payment and there is no limit to how many family members can do it, but they will be taxed on any gifts over $15,000. There are also many stipulations to using the gift for the home purchase such as providing a paper trail of the gift from Donor to Donee, and the relationship between the two parties. Please check with your lender or accountant before entering into any gifting arrangements to be sure you are following federal guidelines!