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

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You’ve piled up a large sum of cash, and you’re finally ready to use it to purchase a home. Or perhaps you’ve built up significant equity in your current home, and are looking to sell it so you can downsize to a property you could buy in cash.

Or maybe you’re a buyer struggling to compete in the 2022 market who’s heard about these new Cash Offer programs real estate tech companies are advertising.

You’re left to wonder: Does it even make sense to buy with cash in 2022, and what does the process look like? If only someone would create a step-by-step breakdown for you…

You’re in luck, because we did just that! We talked to the experts, who walked us through the finer details of buying in cash. Here’s what ahead-of-the-curve buyers need to know.

Why sellers (still) love cash

Buying in cash has plenty of benefits — for one thing, you’ll be mortgage-free (sounds pretty nice!). You’ll also avoid the additional expense of mortgage insurance and save thousands on mortgage loan interest, since you won’t be paying any.

But the biggest reason so many buyers are turning to cash in today’s ultra-hot seller’s market? Gaining an edge over other bids.

“We love working with a cash buyer,” says Sherry Ludecker, a top-rated real estate agent in Johnson City, Tennessee. “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.”

Appraisals remain a hot-button issue

Speaking of ways a deal could meet its untimely end, let’s talk appraisals for a minute.

With a mortgage-backed deal, an appraisal is required by the lender to confirm the value of the home and set limits on how much the buyer can borrow for it. If the home doesn’t appraise and the buyer can’t cover the difference, the seller may have to either accept a lower price or put the home back on the market.

Appraisals have become a hot-button issue for buyers and sellers. That’s because in 2021, a record number of appraisals came in below the offer price, putting thousands of deals in jeopardy.

“The appraisal can throw the entire transaction,” shares Christine Marchesiello, a top real estate agent in Saratoga Springs, New York. So it’s no wonder sellers often lean toward the cash offer that doesn’t require one.

“Now because everyone’s offers are so strong, the [seller] decision points come down to minutiae,” Marchesiello explains.

Removing the appraisal contingency can often clinch a deal, sometimes even when a competing mortgage-backed buyer is offering a slightly higher price.

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.
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    Sherry Ludecker Real Estate Agent
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    Sherry Ludecker
    Sherry Ludecker Real Estate Agent at Keller Williams Realty
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Buying a house with cash: The process

Having cash to make a more competitive offer is great and all — but what about the actual process of buying in cash? It may be simpler than using a mortgage, but buying a home is almost never easy (unless maybe you’re doing it at a courthouse auction!). Let’s go through the whole process, step by step.

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 want to be competitive, it’s a good thing to have a letter from the bank to prove you have the cash available, advises Ludecker.

“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 whether 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?

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.

4. Set a winning offer strategy with your agent

In today’s real estate market, crafting the perfect offer has never been more important.

“I think now people understand that every term of a contract is one that could be the decision point, and kind of the make-it-or-break-it point for them in terms of getting the house because they are in so many multiple offers,” explains Marchesiello.

Gone are the days when you could come in at asking price and easily seal the deal. And forget about trying to get a discount on price! Today, every single detail of your offer has to be on-point, or you could lose out to the next buyer.

Yet that doesn’t mean you should put yourself at risk. You should carefully consider whether to include 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 might consider an inspection contingency and an appraisal contingency.

And remember: Just because you can remove a contingency, doesn’t mean you should. Around 87% of buyers use inspections for a reason. And the appraisal might seem like unnecessary lender red tape — but in actuality, it can protect you from overpaying, too.

So how do you balance being competitive with protecting yourself? Work closely with your agent to create an offer that speaks to the seller’s specific needs. Sometimes that can mean offering a higher price, a more flexible closing timeline, or a rent-back agreement (where you rent the home back to the seller for a period of time after closing). And sometimes that means strategically dropping contingencies.

5. Make your bid

You’ve finished your seller research, created the perfect winning bid, and you’re ready to make that sweet little home your own. It’s time to submit your offer and cross your fingers. When your bid is chosen, you’ll be ready to move quickly with cash in hand!

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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).

12. 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.

13. 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 paid. Pull the funds together in a cashier’s check or plan for a wire transfer.

14. 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.

15. 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.

16. 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.

17. 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.

The pros and cons of buying in cash

So far, buying in cash sounds like a win-win, right? It’s quicker and more certain than getting a mortgage. But there may be considerable drawbacks to keep in mind. Let’s get into it!

Pros

  • Make more competitive offers
  • Choose your contingencies (wisely)
  • Skip worrying about interest rate fluctuations
  • Save money on mortgage insurance and interest
  • Pay fewer closing costs and loan fees
  • Avoid years of mortgage payments
  • Close quicker with less stress
  • Own your home outright immediately
  • Bonus: You can always refinance later if needed

Cons

  • All of your cash is tied up in one investment and isn’t liquid if you need it
  • That cash might work harder for you with other investments
  • You won’t get mortgage interest tax breaks
  • Forgoing inspection and appraisal can put you at financial risk
  • Paying in cash isn’t as quick as it used to be and there could be delays
  • You may not get much of a cash discount on price in the 2022 market

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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