{"id":20297,"date":"2020-11-30T12:02:02","date_gmt":"2020-11-30T20:02:02","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=20297"},"modified":"2024-05-30T10:56:16","modified_gmt":"2024-05-30T17:56:16","slug":"buyer-process-for-buying-a-house-with-cash","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-process-for-buying-a-house-with-cash\/","title":{"rendered":"5 Ways the Process for Buying a House with Cash Is Unlike a Mortgage"},"content":{"rendered":"

You\u2019re gearing up to buy a home and figuring out how you\u2019re going to pay for the biggest asset you\u2019ll own: all-cash or mortgage? Each option has pros and cons<\/a>, no doubt. But what about the actual process<\/i> for buying a house with cash versus using a mortgage? There are a few key differences to understand before jumping into your purchase.<\/p>\n

We tapped the expertise of two of California\u2019s top real estate agents who are well-versed in all-cash deals, thanks to the Golden State\u2019s highly competitive housing markets. They walked us through how the process for buying a home in cash is different than using a mortgage. Here\u2019s what buyers need to know.<\/p>\n

\"You<\/a>
Source: (Pixabay \/ Pexels)<\/figcaption><\/figure>\n

You\u2019ll have more leverage at the offer table<\/h2>\n

One big way all-cash differs from using a mortgage? The competitive advantage it gives you at the negotiating table. With cash, you\u2019ll have more leverage with the seller, and you can potentially get a better deal if you\u2019re flexible.<\/p>\n

Sellers prefer cash offers because mortgages take a long time, and they can come with a dose of uncertainty. On average, a home loan takes around 47 days to close<\/a>, while a cash purchase can close in as little as one week. Plus, there\u2019s always the risk that a mortgage won\u2019t close<\/a> at all, whether because an appraisal comes in too low<\/a>, or because the buyer\u2019s financial situation changes and the loan can\u2019t clear.<\/p>\n

\u201cIn theory, you\u2019re taking risk off the table for the seller, and you can be a lot more flexible and creative with terms and credits,\u201d explains top San Diego real estate agent Daniel Beer<\/a>. \u201cThere\u2019s definitely more control for the buyer.\u201d<\/p>\n

What does more control for the buyer mean? It might mean saving money on the purchase price (some sellers will accept lower all-cash offers just for the certainty), the ability to set your own purchase timeline with the seller, or just an overall stronger and more attractive offer.<\/p>\n

The bottom line: Cash offers are three times more likely to be accepted<\/a>, which puts you in the upper echelon of buyers, and a lot more likely to win.<\/p>\n

You can skip the appraisal<\/h2>\n

When you pay cash for a home, you can also skip the home appraisal process entirely.<\/p>\n

But let\u2019s back up a minute: What\u2019s a home appraisal? The appraisal is when a neutral third party looks at the property and all its features, and studies comparable recent home sales<\/a> in the area to determine the home\u2019s market value<\/a>.<\/p>\n

When you use financing, getting an appraisal is a non-negotiable step in the process, and your home loan is contingent on the results of the appraisal. If the appraisal comes in too low<\/a> \u2014 meaning the home is worth less than you offered on it \u2014\u00a0you may need to renegotiate, come up with the money to cover the difference, or walk away from the deal entirely.<\/p>\n

Mortgage lenders require appraisals to protect their investment in the property and make sure the home is actually worth the money they\u2019re putting up for it.<\/p>\n

But some buyers \u2014 and sellers \u2014 see the appraisal as yet another obstacle to overcome before they can seal the deal. Cash buyers have the flexibility to skip this step.<\/p>\n

\u201cIf you don\u2019t want to perform the appraisal, you don\u2019t have to \u2019cause you\u2019re buying the property in cash,\u201d explains top California real estate agent Ramon Sanchez<\/a>.<\/p>\n

Still, that doesn\u2019t necessarily mean you should<\/i> skip the appraisal.<\/p>\n

\u201cI always recommend making the investment to get an appraisal done,\u201d Sanchez cautions. \u201cBecause you still want to know what you\u2019re buying.\u201d<\/p>\n

The bottom line: Appraisals are optional if you pay in cash, but just because you can<\/i> skip the appraisal (psst: and potentially pay over market value!), doesn\u2019t mean you should.<\/p>\n

\"You<\/a>
Source: (Nathan Dumlao \/ Unsplash)<\/figcaption><\/figure>\n

You won\u2019t pay any lender fees<\/h2>\n

\u201cWhen you\u2019re buying a property in cash, you don\u2019t have lender fees<\/a>,\u201d shares Sanchez. \u201cAll the loan fees you normally have when you buy a house and you\u2019re using financing, those get eliminated.\u201d<\/p>\n

This can save you substantially on closing costs if you\u2019re paying in cash, as lender fees can tack on up to 3% of the loan amount.<\/p>\n

You\u2019ll still have to pay some closing costs, like settlement fees, prepaid taxes, recording fees, and so on, but you can skip loan-related expenses like loan origination fees, credit pulls, and application fees.<\/p>\n

The bottom line: Lender fees can add up to thousands, and with all-cash, you can skip them.<\/p>\n

Cash deals close quicker and with less paperwork<\/h2>\n

There\u2019s no doubt about it: A cash deal is simpler and requires way less paperwork than getting a mortgage. With no mortgage to worry about, you\u2019ll likely close much faster, and with far less confusion. Cash deals can close in as little as a week, while mortgages take an average of 47 days<\/a>.<\/p>\n

With a mortgage, your lender needs to thoroughly vet your finances and complete a lot of due diligence on the property to make sure the loan is safe \u2014 a process that can stretch for weeks, and sometimes months. You\u2019ll be asked to sign tons of forms and submit paperwork on every aspect of your finances. Cash, on the other hand, is as easy as wiring the money.<\/p>\n

\u201cA day or so before the closing, or maybe the day of the closing \u2014 as long as it\u2019s in the morning \u2014 the buyer wires in the cash,\u201d Beer explains. \u201cIt\u2019s the simplest process you can have. It\u2019s cash! You just wire the money, and you close.\u201d<\/p>\n

The bottom line: You can expect to close the deal much faster with cash, and with much less paperwork.<\/p>\n

\"The<\/a>
Source: (Karolina Grabowska \/ Pexels)<\/figcaption><\/figure>\n

Due diligence falls on the buyer<\/h2>\n

So you know how we mentioned that lenders do a lot of due diligence on a property before they\u2019ll issue a mortgage on it? And the reason they do this is because they\u2019re trying to protect their investment? When you buy a home in cash, you\u2019re on your own.<\/p>\n

Well, not entirely <\/i>on your own. Hopefully, you\u2019ve got a top real estate agent by your side who can guide you through the process and make sure you\u2019re getting the best possible deal (if you don\u2019t, we\u2019d be happy to help match you with one<\/a>!). But with all-cash, decisions about inspections and appraisals and how much you\u2019re willing to pay for the home will ultimately fall on you, the buyer.<\/p>\n

There\u2019s no lender stepping in to make sure you\u2019re not overpaying. It\u2019s on you to make sure you\u2019re catching everything and paying a fair price. And as attractive as it may be to the seller<\/i> to skip the inspection and appraisal \u2014 as these steps present the most risk to the deal \u2014 it\u2019s rarely beneficial to the buyer<\/i> to skimp on their due diligence.<\/p>\n

With a home being one of the biggest purchases you\u2019ll make in your life, you\u2019ll want to make sure you\u2019re investing wisely, especially if you\u2019re putting up a whole bunch of cash.<\/p>\n

Bottom line: There\u2019s no lender to protect your investment when you pay cash, so it\u2019s up to you to perform all due diligence and make sure you\u2019re paying a fair price.<\/p>\n

The potential pitfalls of buying in cash<\/h2>\n

Buying in cash sounds pretty great on the surface, right? You might get a cash discount, you\u2019re automatically moved to the top of the offer pile, you can skip all the frustration and paperwork of getting a mortgage, you\u2019ll close way faster, and you don\u2019t have to make mortgage payments once the transaction closes.<\/p>\n

But there are also quite a few all-cash pitfalls to consider<\/a>, too.<\/p>\n

It takes a really long time to save cash<\/h3>\n

Saving to buy a home takes a long time, even if you\u2019re using financing.<\/p>\n

For median-income Americans, it takes an average of 14 years to save up 20% for a down payment<\/a>. In the most expensive cities in the country, it takes much longer \u2014\u00a0up to 30 years or more. And that\u2019s just for 20% down, not 100% of the cost of a home!<\/p>\n

While you\u2019re busy saving cash, homes are getting more expensive year after year, and you\u2019re missing out on building equity in your new home.<\/p>\n

Needless to say, you can probably get into your dream home faster if you use a mortgage. That\u2019s kind of why they exist in the first place.<\/p>\n

You might have a smaller home budget<\/h3>\n

Speaking of how long you\u2019d have to save to buy a home in cash, it\u2019s also worth noting that you\u2019ll likely be able to afford a nicer home, faster, using a mortgage<\/a>.<\/p>\n

Living mortgage-free is great and all, but what if you can only afford a fixer-upper<\/a> with your cash budget? Where will you get the money for repairs?<\/p>\n

What if, instead, you used that chunk of change you\u2019ve been saving, and made a sizable down payment<\/a> on a home instead? If you put down 20% or more, you can even skip the mortgage insurance<\/a>.<\/p>\n

Tying up your cash in one asset may not be your best financial move<\/h3>\n

Putting your money in real estate tends to be a decent long-term investment<\/a>. But is it wise to put all<\/i> your money into one real estate purchase? Probably not.<\/p>\n

\u201cYou look at the most sophisticated real estate people; they don\u2019t buy cash,\u201d explains Beer.<\/p>\n

\u201cThat\u2019s money that\u2019s not invested properly in other areas, plus the appreciation you\u2019re losing from the market, plus your mortgage write-off.\u201d<\/p><\/blockquote>\n

When mortgage rates are low, you can often make your money work for you better without sinking all your cash into one investment. It\u2019s probably a better strategy to broaden your investment portfolio.<\/p>\n

Plus, when you put money into a home, it\u2019s not exactly easy to access it again.<\/p>\n

\u201cTo access your money, you have to then go and borrow against it,\u201d says Beer. \u201cYou have to refinance or sell your home. So it\u2019s making a lot of money very illiquid.\u201d<\/p>\n

\"HomeLight<\/a>
Source: (Miguel \u00c1. Padri\u00f1\u00e1n \/ Pexels)<\/figcaption><\/figure>\n

Header Image Source: (Karolina Grabowska \/ Pexels)<\/i><\/p>\n","protected":false},"excerpt":{"rendered":"

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