Looking to buy a home? How cash offers can give you an edge

As the number of homes for sale remains limited, many buyers are facing increased competition during the offering process.¹ If you—or your loved ones—are shopping in a housing market this tight, how can you stand out from other buyers while potentially bypassing today’s still-high mortgage rates? An all-cash offer may help.

A housing market heats up when the number of buyers exceed the number of houses available for sale, meaning the demand is high and the supply is low.¹

In many cases, all-cash offers can beat mortgage-backed offers, even if the mortgage offer is higher. This is because all-cash offers can generally close faster than a mortgage-backed offer as the standard processing requirements from a lender are bypassed. Making an all-cash offer on homes is trending upwards in recent months. In January 2024, cash transactions represented 32% of all home sales nationwide—the highest it’s been in a decade.²

With the rise in mortgage rates hovering around 7% for a 30-year fixed mortgage, buyers who might have previously chosen to take out a mortgage when rates were down around 2.5% may now prefer to pay cash to help reduce their financing costs while also potentially boosting their chances of success.³

• Selling a current home before making an offer on a new may be a viable option. This method allows you to use the equity from your current home to finance the new purchase, eliminating the need for a mortgage.
• Consider a bridge loan, which is a short-term loan that provides immediate cash flow. This type of loan can be used to cover the gap between buying a new home and selling your current one, allowing you to make an all-cash offer.
• Borrowing from family can help you expedite the process by avoiding applying for a loan or selling property. This can also help you minimize any tax consequences from liquidating investments.
• Liquidating investments is another way to come up with the cash. This could involve selling stocks, bonds or other assets, but it's important to consider the tax implications and potential loss of future growth.

Another approach you can consider that won’t involve liquidating assets is a securities-based loan. With this strategy, a lender will look at the value of eligible securities in your portfolio to determine a loan amount.

If approved, you’ll receive a line of credit which you can then use to help with a cash down payment, while keeping your investments intact and potentially deferring some of the tax implications associated with selling assets. On top of a cash offer, you could use the funds from a securities-based loan for renovations or home furnishings.

Note that borrowing against securities may not be suitable for everyone. As with other loan types, there are risks. A sharp drop in equity prices could trigger a maintenance call, which means that the borrower would need to provide more capital immediately or sell the investments securing the loan, and the lender may sell securities in its own discretion.

• Making an all-cash offer on a home can potentially help you stand out from other buyers.
• One way to raise funds for an all-cash offer is by selling your current home before making an offer on a new one.
• Bridge loans, liquidating investments or borrowing against your portfolio are other strategies to help raise funds.
• A Morgan Stanley Financial Advisor can help navigate these options and help determine the best approach for you.

¹ The Mortgage Reports, Why is Housing Inventory So Low? Understanding the U.S. Housing Shortage, by Peter Warden, Published Feb 27, 2024, https://themortgagereports.com/110662/why-is-there-a-housing-shortage

²  National Association of Realtors, The Share of All Cash Buyers Highest Since 2014 at 32% of All Buyers, by Jessica Lautz, Published Feb 23, 2024, https://www.nar.realtor/blogs/economists-outlook/the-share-of-all-cash-buyers-highest-since-2014-at-32-of-all-buyers   

³ Federal Reserve Bank of St. Louis, 30-Year Fixed Rate Mortgage Average in the United States, Published May 9, 2024, https://fred.stlouisfed.org/series/MORTGAGE30US