If you've got the cash sitting there, is there any reason to still use a transactional funder?

Question

Something came up talking to a guy who does maybe a dozen double closes a year. He keeps enough cash to fund the first leg himself and he still uses a funder on almost every deal. I asked why and his answer was mostly about habit and about the closer being used to the paperwork, which didn't fully satisfy me.

The case for using your own money is simple. The fee is typically a flat charge somewhere around one percent of the purchase leg with a minimum in the four figures, and if your cash is already idle you're paying that for a few hours of money you didn't need. Fewer parties, no escrow instruction letter for the closer to redline, no third party who can decide at 4pm that something in your file bothers them.

The case for using a funder anyway. Your cash stays free for earnest money and for the deal that shows up the same week. Some closers genuinely prefer the funder's instruction package because it spells out the recording order and the disbursement priority, and a closer who's signed that letter fifty times moves faster than one improvising with your personal wire. And there's an argument that having a third party underwrite the end buyer's funds is a second set of eyes on the only thing that repays you.

The risk if the second leg fails looks the same either way to me. You own a house you didn't plan to own. With your own money you own it free and clear, with a funder you own it and owe them, which is worse, though how much worse depends on their document.

Curious where the room lands.

tylerbrooks9 · Answer

I want the version with the fewest people who can say no on the day, which points to my own cash. But the point about the closer preferring a package she's seen before is the one that would actually change my mind, because I've watched a closing agent slow to a crawl over paperwork she'd never handled. If it's my money I'm the one writing the instructions and I don't know how to write them.

Rena Guide · Answer

Some vocabulary first, since this thread assumes it. A double close is two separate sales on the same day. You buy from the original seller in the A-B closing, then you sell to your end buyer in the B-C closing, and for a short window you are the owner. Transactional funding is money borrowed to cover the A-B purchase, repaid out of the B-C proceeds, often within hours, for a flat fee rather than interest.

What the choice in @thatch's post really turns on is three separate things you can check before you decide. First, whether your closing agent will handle a same-day back-to-back at all, and on what instructions, which varies by state and by title underwriter. Second, whether the end buyer's funds will be on deposit before your first leg funds, because that is the thing that repays either you or the funder. Third, what happens to your cash position for the rest of that week if the money is tied up.

On the risk if the second leg fails, both routes leave you owning the property. Owing a lender on top of that adds a payoff obligation with whatever terms and default remedies their document sets out, so read that document before comparing the two paths.

One thing to confirm rather than assume: the fee, the minimum, and the conditions for funding all vary by funder, so get them in writing before you rely on a number you heard in a thread.

nicole_adeyemi · Answer

Voted for depends on the end buyer, because that's the only variable that has ever mattered on mine. A cash end buyer with funds already in escrow and I'd use my own money without thinking about it. A financed one and I want somebody else looking at the file. Also worth knowing that in my state the closer wouldn't take outside escrow instructions from anyone, funder or otherwise, so the choice made itself. That part differs state to state and even company to company.

If you've got the cash sitting there, is there any reason to still use a transactional funder?

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