Are you getting beat out by home buyers with all-cash offers? There are a number of new, interesting solutions to this dilemma, including a startup called Ribbon.
Ribbon offers to pay cash for the home you are buying. When would you do this? If you are unable for any reason to secure your purchase mortgage in time to close, Ribbon steps in, pays cash and allows you enough time to find a permanent loan to replace Ribbon’s payment.
Competing With All-Cash Offers
First-time home buyers have two major challenges when it comes to making a successful offer. First, they find themselves competing with large investment firms that are buying up starter homes for rental portfolios and foreign buyers who seek to invest in U.S. real estate. These all-cash offers come with no contingencies and close quickly. The certainty and speed of the offer are hard for home sellers to resist.
Even with a pre-approval, many first-time home buyers find their loans delayed, or even declined right before escrow is supposed to close.
Second, getting a loan is even harder for a first-time home buyer than it is for a repeat home buyer. Your down payment is usually smaller, your job history less established and your credit history less mature. Consequently, even with a pre-approval, many first-time home buyers find their loans delayed, or even declined right before escrow is supposed to close.
Ribbon solves these issues by eliminating the mortgage contingency and thus assuring sellers that you will close, one way or the other.
Ribbon Home: How It Works
You start by submitting your application to Ribbon to qualify for the offer. Ribbon wants to be sure that you are likely to qualify for the mortgage, whether during escrow or after the purchase.
Ribbon will then run an automated valuation software model to make sure that the price you are offering is reasonable; after all, they don’t want to be under water.
Ribbon works with the agent of your choice to make a non-contingent offer. Once the offer is accepted, you are in escrow and on your way!
Ribbon works with any agent and any mortgage company, so you may choose the professional representation that you want.
What’s the Cost?
The cost to you for Ribbon’s service is nothing. The company charges home sellers 1.95 percent of the purchase price. Ribbon believes sellers will be willing to pay that premium because they would typically have to discount the price to get an all-cash offer anyway.
Ribbon charges nothing to the buyer, but that doesn’t mean there are no costs; it will depend on your situation.
If you are able to secure your mortgage before close of escrow, you should see no additional costs, unless of course you needed to increase your offer a little to get it accepted.
If you are able to secure your mortgage before close of escrow, you should see no additional costs, unless of course you needed to increase your offer a little to get it accepted. If you are unable to secure your mortgage before close of escrow, Ribbon will buy the property and lease it to you with the option to purchase it within a specified time frame.
There are always fees associated with purchasing a property, like title, escrow, transfer taxes and the like. The amount of these fees and the custom of who pays them varies by location, but if Ribbon purchases the property and then sells it to you in a few months, many – if not all – of those fees will have to be paid twice.
Ribbon isn’t clear on its website about how it treats these fees or whether it pays them or not, and as of this writing they have not responded to inquiries. However, we assume that the company does not pay for these fees out of its charges to the buyer, as these fees can often exceed what Ribbon charges.
Still, if this gets you into the home that you otherwise could not, the additional fees are a small price to pay to secure the home you want.
Ribbon is Raising Capital
According the TechCrunch, Ribbon – which was founded by a top executive from Lending Club and an engineering team from Twitter - has raised $225 million from a consortium of venture capital firms.
Ribbon is headquartered in Charlotte, North Carolina, and currently operates in metro areas in the state. The company plans to expand into 10 new markets in the next year, with plans to become national eventually.