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Buying A House With Cash: What To Know

Sidney Richardson5-minute read
September 21, 2020

Thinking about buying a house with cash? Cash offers are becoming more and more uncommon as home prices remain high. If you have the funds, paying for a house in cash may be a great option and can give you some negotiating leverage.

Interested in learning the ins and outs of buying a house in cash? Let’s break down the process and talk about how cash transactions differ from the steps of getting a traditional mortgage.

Can You Buy A House With Cash?

Yes, you can buy a house with cash – but maybe not the way you’re thinking. If you’re imagining someone at the closing table pushing in a wheelbarrow overflowing with stacks of hundred-dollar bills, that’s not (usually) what goes down. Buying a house with cash just means that you’re using your own funds to purchase a home outright rather than financing it with a mortgage – you don’t actually need to bring coins and paper bills to the sale.

But why pay in cash in the first place? Well, for starters, a cash payment upfront means you won’t have to make loan payments – which means you won’t have to pay any interest. By paying for a house in cash, you can actually save tens of thousands of dollars that you would have otherwise had to spend on interest if you’d taken out a loan. Beyond that, closing costs tend to be cheaper in cash transactions since there are no loan-related costs and fees to worry about.

The cash transaction process can also be much faster than getting a mortgage. For all these reasons, many sellers actually prefer cash offers to regular ones. With a cash offer, even one lower than the offers of other home buyers that plan on getting mortgage loans, sellers know they’ll get their money right away, which is very attractive. Being prepared to pay in cash can give your offer a serious advantage in any bidding war.

How To Buy A Home With Cash

So, how do you actually go about buying a house with cash rather than getting a loan? Let’s go through some of the most common steps to help you get an idea of the process. 

Obtain Proof Of Funds  

The first step to any strong cash offer is getting your money together and proving to sellers that you actually have it. Your money for the purchase doesn’t all have to come from a savings account; you can liquidate stocks and other investment accounts for this purpose too, just make sure you consult a financial professional before doing so to assure you’re aware of any potential problems or tax implications that could come up.

Once you’ve got all the money you’ll need, you will probably also want to visit the bank and get a proof of funds letter. This letter documents and confirms how much money you have available in your account so you have something to show sellers that can back up your claim of having the money for the purchase.

Make An Offer 

Once you’ve got all of your money together and found a house you want to purchase, it’s time to make an offer. Don’t be afraid to aim a little low with a cash offer. It’s important to remember that these offers, even those slightly lower than asking price, are often stronger than competing offers because they provide a certainty that mortgage loans can’t. 

Get A Property Title Search

The next important thing you should do is consult a title company to do a property title search on the home you’re looking to purchase. This search examines public records associated with the home to confirm that the seller is the property’s legal owner and is able to sell the house and transfer title. If you go through with a traditional mortgage, a title search is usually organized by your lender and paid for at closing; for cash transactions, you’re in charge of requesting it.

It’s important that the title of the home you’re buying is clear – because if it isn’t, it could mean trouble for you as the buyer. If the title has outstanding claims or liens on it and you buy the house, these could become your responsibility. That means taking on the burden of things like unpaid property taxes, homeowners association (HOA) fees, bills, etc. If a title search uncovers something like this, it’s likely you’ll want to walk away from the sale.

Get An Inspection

When you buy a home with cash, you’re not required by a lender to get an appraisal or home inspection – but it’s not a step you should skip. It’s always a good idea to get an appraisal to make sure the home is worth the price you’re about to pay for it, but you should consider a home inspection on top of this as well. During a home inspection, an inspector examines every inch of a home to make sure there is no damage or notable issues and that all appliances and features work the way they’re supposed to.

It's a good idea to make sure that there’s nothing wrong with a house before you buy it to save yourself the headache of having to deal with a serious, expensive issue later.

Get Your Earnest Money Check

Earnest money is a sum of money offered to the seller before closing to show you’re serious about purchasing. You don’t have to offer earnest money – but this good faith deposit can strengthen your offer and build trust with the seller. Plus, the money doesn’t go to waste; if you do close on the house, the deposit is generally rolled into your closing costs.

Earnest money deposits are typically around 1% – 3% of the purchase price. Most home buyers pay this deposit via cashier’s check. 

Purchase Homeowners Insurance 

Even though you don’t have a lender that will require you to get homeowners insurance, it’s a good idea to invest in a plan to cover your future home in case of emergency. Homeowners insurance provides you with financial relief should a disaster covered by your policy damage your home or belongings. This type of insurance generally covers things like fire, snow and wind damage as well as injuries on your property that you may be responsible for.

If your house burns down, for example, homeowners insurance will likely cover the damage to your belongings to help you purchase replacements. Without homeowners insurance, you would have to pay for any damages or replacements for destroyed items out of pocket. 

Closing

Once you get everything in order, all that’s left to do is close the deal. Closing on an all-cash transaction is much faster than closing on a home with a mortgage because you’re not borrowing any money. All you’ll need for closing is yourself, a valid government-issued ID, a cashier’s check or wire transfer for the purchase of the house and anything else your real estate agent or seller needs you to bring.

Other Considerations 

With a cash transaction, the process for securing your new home is in some ways less defined than getting a loan because there are no lender requirements and guidelines surrounding what you should do. If you’re interested in taking other precautions before closing such as doing a land survey, getting a pest inspection or negotiating certain closing costs, talk to your real estate agent or REALTOR® for help on where to start.

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Considerations For Sellers

Now that you know the ins and outs of making a cash offer, let’s talk about how these offers can affect you as a home seller rather than buyer. 

Removes Risk

As a seller, when you accept a cash offer, it removes a great deal of risk from the transaction. When you take a non-cash offer, you may have to deal with contingencies and all sorts of other problems with the sale falling through due to problems on the buyer’s end. A cash offer assures that won’t happen because you can see that the buyer has the money to cover everything upfront, no loan or lender involved. 

Faster Closing Time

When closing on a regular home transaction, it can take weeks or months, depending on whether the buyer has trouble securing financing, has inspections done, etc. Cash offers, on the other hand, can close in as little as a week or two if all goes according to plan, since there’s no loan to consider. If you need to get out of your home and move as soon as possible, a cash offer can help you put your plans in motion faster. 

You Can Skip Negotiations

When closing with a buyer who is financing with a mortgage, there are plenty of things that may be negotiated, from loan application fees to real estate commissions and title insurance costs. You don’t really have to worry about that with a cash buyer, since there is, again, no loan. The number of compromises you’ll have to make as a seller is usually much lower when accepting a cash offer.

Considerations For Buyers

As a buyer, you now know how to make a cash offer – but why should you? Here are a few more things to consider before taking the leap yourself. 

Can Make You More Competitive

One huge benefit of a cash offer is that it can make your offer more competitive. If you’re trying to get a house in a hot real estate market, a cash offer might look way more appealing to the seller than a non-cash one. It’s less risky to accept and sellers know they’ll get their money right away. If you’re in a bidding war for a home, a cash offer could seal the deal.

Taxes And Insurance 

Something important to consider as a cash buyer is that you won’t have a lender to help you take care of property taxes and homeowners insurance. These costs are usually lumped together in an escrow account as part of your monthly mortgage payment – but without a loan, you’ll need to remember to pay these fees and taxes on your own. 

You’ll Spend A Lot – But Save Money In The Long Run 

When you buy a house in cash, that’s a lot of money that will come out of your pockets all at once. Dropping $150,000 on a house from your savings might drain your bank account or investments pretty significantly. The good news, however, is that buying this way also saves you money. If you get a loan for a house that’s worth $200,000, you’ll likely pay an additional $122,000 or more in interest over the life of the loan at an interest rate of 3.49% over 30 years. That’s more than half of the cost of the house. By purchasing that same house in cash, you could likely get it for less than the listing price and avoid paying all that interest, too.

Making A Cash Offer On A House

If you decide to make an all-cash offer on a house, remember that it’s still a good idea to work with a real estate agent or REALTOR® to make sure you’re walking away with the best deal possible. Some agents may even specialize in cash deals and can advise you on what your best options are.

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What Are The Pros And Cons Of Buying A House With Cash?

Before you make a cash offer, let’s do one last review of the pros and cons of buying a home without a mortgage.

Pros 

  • You have an advantage over buyers who make non-cash offers
  • You may be able to get the home at a price lower than what was initially asked
  • You can close on the house much faster
  • Fewer roadblocks than a sale with a mortgage involved

Cons

  • You’re tying up all your money in this house and it can’t be liquidated easily
  • It costs a lot to buy a house out of pocket
  • You still have to pay property taxes, homeowners insurance, etc. and you miss out on mortgage tax deductions
  • There’s no guarantee a seller will value your offer above others

The Bottom Line

Buying a house with cash is a great way to strengthen your offer and save money on mortgage interest in the long run. It does have its downsides, however, and isn’t feasible for many home buyers that cannot afford to purchase real estate with their savings. Before making a cash offer, consider your own financial situation and whether making a cash offer would be feasible or beneficial for you.

If you’re in the process of buying a house now, explore our Financial Learning Center for more tips, tricks and guides to help you on your journey.

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Sidney Richardson

Sidney Richardson is a professional writer for Rocket Companies in Detroit, Michigan who specializes in real estate, homeownership and personal finance content. She holds a bachelor's degree in journalism with a minor in advertising from Oakland University.