Why would a bank take a lower all cash offer versus a higher offer via conventional lending?
It's because financing can fall through, and then the time between offer and closing is wasted. Often buyers will include preapprovals and other evidence of financing eligibility with their offer for this reason. One other point to consider is that cash offers often include no contingencies. That is, the offer comes in and if the seller signs then the deal is done, without any chance that the buyer backs out. As you can imagine, this is an attractive option in some situations. "Often the counter-party has obligations with respect to timelines as well -- if your buying a house, the seller probably is too, and may have a time-sensitive obligation to close on the deal. I'm that scenario, carrying the second mortgage may be enough to make that deal fall through or result in some other negative impact. Note that ""pre-approval"" means very little, banks can and do pass on deals, even if the buyer has a good payment history. That's especially true when the economy is not so hot -- bankers in 2011 are worried about not losing money... In 2006, they were worried about not making enough!" @OP:  It's all about risk.  With a cash buyer the decision is left up to one person.  With a financed buyer it adds another approval process (the lender).  It's another opportunity for the deal to fall through.  If the bank is the lender then there's even more risk.  They've already taken back the property once and incurred cost and they're setting themselves up to do it all over again.  The discount price can depend on a lot of factors.  Maybe it's a bad area and they need to get rid of it.  Maybe the appraisals for the area are low because of foreclosures and they know it will be hard for a Buyer to get a loan.  Lots of reasons as to what price they'd take. @Shawn:  Every deal has contingencies unless it's a foreclosure bought at auction.  Even if you are getting a steal from the bank in terms of price you're always going to have an inspection period.  If a Buyer doesn't need an inspection then he will just go to an auction and buy a property for an even cheaper price. A bank selling a foreclosed property would negotiate a lower cash deal, I doubt it would be that extreme, 130 vs 100.  An individual seller may give up $10K to save time and get his next home closed as well, but again, I suspect it would be rare to find that large a delta. Also keep in mind that with an all-cash offer, they get their money now and not spread over X-many years, which means they can reinvest it now rather than piece meal across the term of whatever the loan would be. (Presuming the bank would be financing the house themselves.) Additionally, with an all-cash offer, there end to be fewer lawyers at the table, fewer parties total, so the process can generally proceed faster.
The mortgages were pooled with other mortgages and sold off to other firms, in theory mitigating the risk. However, the reason lenders searched out these types of deals was because they could use the lack of credit rating etc as an excuse to charge much higher interest rates.   Chase and most lenders made their money by borrowing their funds from some other institution and then lender it out to these borrowers so they were always looking for a large yield spread. Account Executives made more money on sub prime because everyone made more money on those deals.   That is of course, until the pools hit a percentage rate of foreclosures, forcing a buy back of the pool. Then all of the small time players, like New Century went bust when their investors called them to buy the pools of mortgages back. Capital requirements for a de novo bank, as opposed to an established one, are a real bitch.  Basically the government wont let you loan nearly as much of your money out.  You can't skirt this by buying an existing bank.  Regulators don't want upstarts making stupid loans and thus encouraging lower credit criteria systemwide.  Also Incumbents don't want more competition and they have lobbyists so I don't see this changing soon. I don't know that FHA loans have better rates than conventional loans.  I've never heard that and some quick googling didn't yield anything (please correct me if I'm wrong). So if you have the necessary down payment to get a conventional loan, I'm not sure I see any benefit for looking at FHA loans.  I think the only benefit outside of a low down payment is the ability to (possibly) get a loan with a lower credit score. This bit of marketing, like the zero-percent introductory rates some banks offer, is intended to make you more willing to carry a balance, and they're hoping you'll continue that bad habit after the rate goes back up. If you don't think you'll be tempted by the lower rate, yhere's no reason not to accept (unless there's something in the fine print that changes your agreement in other ways; read carefully). But as you say, there's no reason to accept ir either. I'd ignore it. The tight lending standards such as elimination of low-documentation and sub-prime mortgages and requirements for lower loan to value, contribute to keeping all but those with pristine credit and cash reserves out of the market.  Some might consider this good for long term stability in the market.    I just went through doing a 20% down mortgage plus had to have one year extra liquidity in reserve. It is in the bank's interest to sell the property for as much as they can (although it is doubtful they will put as much effort/time into selling it as the owner might). They will certainly not sell it for $1. The main reason for this is that the bank would prefer to own $100k, than a loan to them from a customer for $100k. Banks have to discount the value of loans to take into account the likelihood of the loan not being repaid. They classify certain loans as riskier than others, and these are discounted more heavily. An unsecured home loan to a customer that has already defaulted, has no collateral, and now needs to pay rent AND loan repayments would count as an extremely risky loan. I've had all my account with the same bank for all my life. Generally, the disadvantage is that if I want some kind of product like a credit extension or a mortgage, I have the one bank to go to and if they don't want to help me I'm out of luck. However, occasionally there are also perks like the bank spontaneously offering you increased credit or even a whole line of credit. They can do this because they have your whole history and trust you. Imagine the bank loaning 100% of the sum of money you needed to buy a house, if the valuation of the house decreases to 90% of the original price after 3 months, would it be unfair for them to ask them for 10% of the original price from you immediately? I suppose the rationale for loaning 80% is so that you will fork our 20% first, and so your property is protected from fluctuations in the market, that they do not need to collect additional money from you as your housing valuation rarely drops below 80% of the original price. Banks do need to make money too, as they run as a business. "With (1), it's rather confusing as to where ""interest"" refers to what you're paying and where it refers to what you're being paid, and it's confusing what you expect the numbers to work out to be. If you have to pay normal interest on top of sharing the interest you receive, then you're losing money. If the lending bank is receiving less interest than the going market rate, then they're losing money. If the bank you've deposited the money with is paying more than the going market rate, they're losing money. I don't see how you imagine a scenario where someone isn't losing money. For (2) and (3), you're buying stocks on margin, which certainly is something that happens, but you'll have to get an account that is specifically for margin trading. It's a specific type of credit with specific rules, and you if you want to engage in this sort of trading, you should go through established channels rather than trying to convert a regular loan into margin trading. If you get a personal loan that isn't specifically for margin trading, and buy stocks with the money, and the stocks tank, you can be in serious trouble. (If you do it through margin trading, it's still very risky, but not nearly as risky as trying to game the system. In some cases, doing this makes you not only civilly but criminally liable.) The lending bank absolutely can lose if your stocks tank, since then there will be nothing backing up the loan." You must consider the different levels of risk associated with each loan. When the bank loans you money, it does so based on a high degree of information about your financial situation (through your credit report + additional information gathered at the time of granting your request). It feels quite confident that you will repay them, and therefore considers you to be low risk. In order to make a profit off of all its low risk clients, the bank only needs to charge a small rate of interest - competitive with the market but enough to cover the losses from clients who will default. When you loan money through a peer-to-peer program, you are at two distinct disadvantages from the bank: (1) Your loan portfolio will not be diversified; that is, you may have only a single person or a small handful of people owing you money. Any catastrophic event in their lives may wipe out their loan to you. Whereas the bank can play the averages with a broader client base. (2) You have less information, and ultimately less (effective) power to reclaim your losses. Would you feel confident walking behind the desk at a bank today, and deciding whether to approve someone's loan based on the information that the bank's back-end has already determined is necessary to make that decision? Now how about when you are doing it on your own? Because of this, you take on more risk from a peer-to-peer loan than a bank takes on from you. That's why the person is willing (or, required due to market availability) to pay a higher rate; they know they are higher risk. That doesn't mean this is a bad idea, just that there is a specific reason that the difference in rates exists, and it implies that you should consider carefully whether the risks outweigh the benefits. Note that the concept of taking a buy/sell position on two theoretically identical assets while earning a net profit at no risk is known as 'arbitrage'. Arbitrage situations rarely exist, and never for long. Whenever you see a position that appears to be arbitrage, consider what might make it not so. ie: you could buy inventory in location A, and sell it at 10% higher margin in location B - but have you considered transportation, carrying costs, and interest for the period that you physically held the inventory? The appearance of arbitrage may (in my opinion) be a sign that you have incomplete information. "As RonJohn points out, direct deposit is something very different.  What's going on here is that they are trying to exclude the ""customers"" that open the account simply for the premium and then close it again as soon as the terms of the offer have been met.  Most people have only one regular source of direct deposit money, either their paycheck or a retirement check.  This acts to make it hard for them to simply take the offer and run." "All cash deals basically mean that the acquiring company isn't going to offer you shares in itself, but only the cash equivalent. Mechanically, the acquiring company will find out who the shareholders are, then use electronic means to send money to the shareholders of the target company through their brokerage accounts (slightly oversimplifying here but it's the essence).  As you've pointed out, using physical cash is impractical - they would have to send these amounts of cash to each shareholder of WFM, who will easily number in the tens or hundreds of thousands.  As for AMZN, how it raises this amount of cash is not addressed when we say the deal is ""all cash"". Essentially, it's AMZN's problem to figure out where to get this cash, be it through internal operations, bank borrowings, or issuing new equity." Banks consider investment mortgages (and any mortgage where you don't live in the property), as a riskier investment than an owner occupied, home collateral mortgage. The sources of increased risk range from concerns that you will screw up as a landlord, your tenants will destroy the place, you won't have tenants and can't afford to pay the bank, and/or you'll take out several other investment mortgages and over extend yourself. All of these risks are compounded by the fact that it is harder for the bank to convince you to pay when they can't put you out on the street if you default. Banks lend and invest in money, not real estate, so they would much rather have a paying loan than a foreclosed house, especially with the modern foreclosure glut. The increased risk means the bank will charge higher interest for the loan, may require a higher downpayment, and will require higher lending standards before issuing the loan. A new housing investor can get around these higher prices by living in the home for a few years before renting it out (though your lender could possibly require you to renegotiate the loan if you move out too soon). Assuming that the financial system broke down, not enough supply of essential commodities or food but there is political and administrative stability and no such chaos that threatens your life by physical attacks.  The best investment would then be some paddy fields, land, some cows, chickens and enough clothing , a safe house to stay and a healthy life style that enables you to work for food and some virtue at heart and management skills to get people work for you on your resources so that they can survive with you (may be you earn some profit -that is up to your moral standards to decide, how much). It all begins to start again; a new Financial System has to be in place….! Whether applying for a job or buying a house, Offer a more specific price like $72,500, which tells them you thought hard about the price. $70K is too 'round' of a number. Additionally, your financial ability/condition can be a factor too. If you have 20% down, and your Realtor assures the seller that your transaction will go down without a hitch, and you'll be approved for a mortgage, they may accept your offer of $72,500 over the other guys $78K offer if [s]he has less desirable finances. Good Luck!