Buying Your House With Cold, Hard Cash? Here’s Your Step-by-Step Guide

You’ve piled up a large sum of cash, and now you want to use the money to purchase a home. Buying a house with cash has plenty of benefits — for one thing, you’ll be mortgage-free, which means you won’t be beholden to a monthly mortgage payment (sounds pretty nice!). You’ll also avoid the additional expense of mortgage insurance, and you’ll save thousands (often tens of thousands) of dollars on interest; the average homeowner can easily pay over $100,000 in interest over the life of a 30 year mortgage. Buying a house with cash is a process, though, and it doesn’t always make sense.

The share of all-cash home buyers has declined since 2014 because, “money is cheap right now with low interest rates, so some people who could buy in cash opt to buy with a mortgage,” says Sherry Ludecker, a top-rated real estate agent in Johnson City, Tennessee.

Still, “we love working with a cash buyer,” Ludecker says. That’s because “a buyer purchasing a home with a mortgage loan could still lose their financing, even with a solid preapproval letter. So, a cash buyer gives sellers peace of mind. It’s one less way a deal could die.”

If you’re ready to take the leap and buy a home in cash, here’s how to do it.

A jar of cash used to buy a house.
Source: (Lazy_Bear / Shutterstock)

Buying a house with cash: The process

1. Get the cash together

The first step to purchasing a house with cash is to make sure you have the cash together in one place.

Maybe you’ve already got enough money sitting in a savings account, waiting to spend on the perfect home. But if your cash is socked away in various places, like stocks or money market accounts, you’ll want to cash out those accounts and gather your money together.

You’ll probably want to talk to a financial advisor and a tax professional before cashing everything out just to make sure you understand the full picture and all of the tax implications of liquidating these types of accounts.

Once you’ve figured out where the money is coming from, it will be easier to take the next step: getting proof that you have the cash.

2. Obtain proof of funds from the bank

If you make a cash offer and you want to be competitive, it’s a good thing to have a letter from the bank, advises Ludecker, in order to prove that you have the cash available.

“Talk to the institution that holds your money and ask them to provide a letter stating you’re able to purchase in cash up to a certain amount and attach it with your offer.”

Providing a proof-of-funds letter is more secure than forking over a bank statement, which contains sensitive information.

3. Find your house

Now begins the fun part — shopping for your house!

A good real estate agent can not only help you narrow your choices but can also help you determine if the price that the seller is asking for the house is fair or not. Just because you’ve got a certain amount of cash to burn, doesn’t mean you should overspend on the home.

As you shop, keep a few important details in mind. First, think about what your life might be like five years from now. While the home you’re interested in might be a great fit for your life today, will that still hold true five years down the line?

As you search for a home, remember that cosmetic details, like the color of paint on the walls or the landscaping out front, are easy and inexpensive to change. Don’t get hung up on the small things you don’t love about the house. Instead, focus on the home’s systems. Are the roof, windows, and HVAC system in good working order? Are the appliances up-to-date? Take a look at the big picture, as a home with good working systems will give you the best bang for your buck.

Finally, you know what they say about real estate: Location, location, location. Once you buy a home you can change almost anything you want about it– except for where it’s located. If you love a house but have reservations about its location, think long and hard before you decide to commit.

Source: (Kelly Sikkema / Unsplash)

4. Make an offer

Once you’ve found the house you want, it’s time to make an offer.

Offering cash for a home purchase will make you more competitive in a seller’s market, says Ludecker. “I have a client who bid on a cute little house, and it was one of nine offers that came in on the first day or two,” says Ludecker. Unfortunately, her client lost that house to a cash buyer.

When you make your cash offer, consider including contract contingencies to protect yourself in the deal. A contingency means that you’re willing to purchase the home contingent on certain details checking out. Though you won’t need a financing contingency, you should consider an inspection contingency and an appraisal contingency.

When you include an inspection contingency and an appraisal contingency with your offer, you’re indicating to the seller that you would like to buy the home as long as the home inspection reveals the home to be in good working order and the appraisal comes back in the ballpark of the purchase price.

5. Choose a settlement agent

Even though you won’t need to deal with a lender, there’s no escaping the closing and title process to make sure there are no problems with the title of the home and that the transaction closes smoothly.
Depending on where the property is located, your settlement agent will do a couple of things for you. They’ll act as an independent third party to hold, account for, and transfer money, and they’ll also facilitate the title search and title transfer.

In most states your settlement agent will be a title or escrow company, but in others, the closing may be handled by special closing attorneys. Talk to your real estate agent and choose a settlement agent that can see the deal through to completion and ensure the title research is thorough.

A check used to buy a house with cash.
Source: (Andrey_Popov / Shutterstock)

6. Secure your earnest money check

If you offered earnest money as part of the deal, get a cashier’s check for the earnest money amount. You’ll want to bring a cashier’s check instead of a wad of cash because “cash is a word, not a thing,” says Ludecker.

“Cash doesn’t have a place in real estate — no one wants a pile of cash to count.”

The settlement agent will hold onto the earnest money until the sale is finalized.

7. Get an inspection

It’s time to make sure there aren’t any hidden problems with your soon-to-be new home by scheduling an inspection.

Ludecker says that cash buyers will often include an inspection contingency “for informational purposes only” in their offer. “It indicates that if something is disclosed, you can walk away, but you won’t ask for repairs,” says Ludecker.

In other words, when you include an inspection contingency for informational purposes only, you’re telling the seller that, no matter what the inspection reveals, you won’t ask them to make repairs — though you reserve the right to walk away should the inspection reveal a huge issue. Otherwise, you’re willing to purchase the home as is.

8. Take part in title research

Title research is an important part of the homebuying process because you want to make sure there are no unknown liens or claims on the house before you take ownership. This should be handled by your settlement agent.

You should also consider purchasing title insurance, which insures your ownership rights to the property, should title research miss something.

9. Consider getting a land survey

If you are purchasing a large plot of land or a piece of property without a clearly defined lot, think about getting a land survey. The survey will show exactly where the property boundaries are, determine whether the house is on a floodplain, and outline any easements.

Source: (Andrey_Popov / Shutterstock)

10. Get homeowner’s insurance

Even though you’re buying your house outright and are not required to insure it, purchasing homeowner’s insurance is still a wise decision. You’re investing your hard-earned cash into an asset worth hundreds of thousands of dollars, so you want to make sure it’s insured in case something unexpected happens.

If you’re unsure what level of homeowner’s insurance you should obtain, ask your insurance agent (your car insurance agent is a good place to start if you don’t have a homeowner’s policy on your current place).

11. Consider an appraisal

Though you don’t really need an appraisal because you’re paying cash, you may want to confirm that the house you’re purchasing is worth what you are paying for your own peace of mind.

One way to approach this is to ask for an appraisal and bake a contingency into the offer, so if the house appraises much lower than the purchase price, you can renegotiate or walk away.

12. Secure a check for the balance

Now that you’ve inspected and appraised the house, it’s time to prepare to pay for the home.

Secure a check for the balance owed, after subtracting the earnest money you’ve already put forth. Pull the funds together in a cashier’s check or plan for a wire transfer.

13. Figure out what other funds you might need

Will you have to pay homeowners’ association fees? Are you responsible for paying closing costs — or will the seller do that? These terms should be laid out in your purchase contract.

Talk to your agent about what you owe outside of the purchase price so you can have everything ready to go.

A person walking into a house he bought with cash.
Source: (Farrel Nobel / Unsplash)

14. Conduct a final walkthrough

Just before the house closes, you’ll walk through one more time to make sure it’s in the condition you are expecting.

Check to make sure the house is “broom clean,” that everything is there that should be (did the owners take the appliances, even though they were included in the deal?), and that the sellers didn’t leave a big mess behind when they moved.

15. Come to the closing

It’s time to officially become a homeowner!

Because you’re not applying for a mortgage, the process to close will be quicker than if you were borrowing money.

“Sometimes a cash deal can close in a week or two or three,” Ludecker says, rather than a month or more, depending on whether the cash buyer chooses to do an inspection or if they encounter any title complications.

“Nothing takes quite as long with cash because you don’t have to go through the financing end of things,” she explains. “Lenders often need more time, which can slow the process.”

When you come to the closing table, bring your ID, the cashier’s check or wire transfer for the purchase price, and anything else your agent says you might need.

16. Move into your home!

It’s time to move in and enjoy your new home!

Remember that your mortgage is due by the 15th of every month — just kidding! You’ve purchased your home in cash, so enjoy the freedom your mortgage-free lifestyle brings.

Is there a way to get the benefits of cash without emptying your savings?

Buying a house in cash can streamline the process, but it’s not always the most beneficial decision for a buyer. Depending on how much you have saved up and how much the house costs, you might find yourself strapped later on if you need funds for repairs, maintenance, or to help fund a life event.

HomeLight Cash Offer is the best of both worlds: Buyers can make a highly competitive all-cash offer while financing their purchase, and sellers can close quickly and with confidence that the deal is done. It’s well worth exploring if you’re interested in paying cash, but hesitant to tie all those funds up in one place.

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