According to Sanchez, the six levels of buyers are:<\/p>\n
- \n
- All-cash buyers<\/li>\n
- Buyers using financing and putting down 20% or more<\/li>\n
- Buyers using financing and putting down between 10% and 19%<\/li>\n
- FHA and VA buyers with low down payments<\/li>\n
- First-time buyers<\/li>\n
- Anyone asking the seller to help them with closing costs<\/li>\n<\/ol>\n
But why, exactly, is cash at the top of the list? How do cash home purchases work? And is there any reason you wouldn\u2019t<\/i> want to pay cash for a home?<\/p>\n
HomeLight\u2019s got all the answers you need right here! We\u2019ve interviewed top experts in the field to unpack buying a house with cash: here\u2019s just about everything you need to know.<\/p>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/04\/buying-house-with-cash-pen-666x381.png\")
<\/a>Source: (John Jennings \/ Unsplash)<\/figcaption><\/figure>\n <\/div>\nWhat\u2019s a cash offer?<\/h2>\n
A cash offer simply means you have all the money you need to buy the home in cash. If you\u2019re using cash, you\u2019ll have to show proof of funds with your offer.<\/p>\n
Then it\u2019s a matter of completing your due diligence: clearing the home\u2019s title<\/a>, getting a home inspection<\/a>, confirming the home\u2019s price (through an independent appraisal, if you choose), and closing the transaction.<\/p>\n
<\/div>\nHow buying with cash is different from a mortgage<\/h2>\n
Buying a home using cash is pretty much the simplest real estate transaction<\/a> you can make. That\u2019s because you\u2019re removing an important third-party: the lender.<\/p>\n
Typically, with a financed offer \u2014 that is, one that\u2019s backed by a mortgage \u2014\u00a0your offer is contingent on the mortgage going through successfully. Because of the due diligence involved with issuing mortgages, it takes a lot longer to close<\/a> on a home with one.<\/p>\n
According to Jessica Sanchez, Head of Mortgage Operations at HomeLight, this due diligence is two-fold: the lender also needs to check out both the borrower and the property to make sure it\u2019s safe to lend money for the home purchase.<\/p>\n
\u201cWe have to ensure that the property appraises, and that it isn\u2019t rotting and termite-infested and falling down. We have to ensure that the borrower is employed, that their income is viable. We have to verify down payment assets. And all of those things take time,\u201d she adds.<\/p>\n
According to the latest homebuyer data, closing with a mortgage takes an average of 57 days<\/a> for home purchases.<\/p>\n
How long does it take to close with cash?<\/h3>\n
One of the biggest benefits to buying a home in cash is the time you save on closing.<\/p>\n
Once you remove financing requirements from the mix, a cash home purchase can close in around one to two weeks<\/a>, depending on how smoothly everything goes.<\/p>\n
\u201cYou can actually close escrow in seven days, as long as we get all our paperwork in \u2014\u00a0meaning from the title and escrow companies,\u201d shares Ramon Sanchez.<\/p>\n
That\u2019s not to say delays can\u2019t happen<\/a> on cash purchases \u2014\u00a0unfortunately, delays can happen with any<\/i> home purchase. But in general, cash is way faster than using a mortgage.<\/p>\n
By now, you can probably understand why sellers are partial to cash offers: These deals are much quicker and come with more certainty than you get with financed buyers.<\/p>\n
<\/div>\nShould you buy a house with cash?<\/h2>\n
Of course, buying a home for cash isn\u2019t for everyone<\/i><\/a>. For one thing, you need to have the cash (though all-cash offers are being increasingly made available for homebuyers that don\u2019t have the entire purchase price in cash through special programs like our own HomeLight Cash Offer<\/a>).<\/p>\n
The reality is, saving for a cash home purchase can take a really long time<\/a> \u2014 decades in some cases. Plus rising home prices often outpace what you\u2019re able to put away for your purchase.<\/p>\n
But let\u2019s say you have the money and you\u2019re ready to plunk it down on a home. It\u2019s probably a good idea to understand the pros and cons of buying in cash<\/a> first, right?<\/p>\n
Pros of buying in cash<\/h3>\n
\u201cCash is king\u201d is the adage you hear over and over again. But why? Let\u2019s walk through the major benefits of paying all-cash for a home.<\/p>\n
Cash offers are more competitive<\/h4>\n
Sellers love cash for its quickness and ease. Having cash is a surefire way to make your offer heard across your local real estate market. If a seller is looking to unload their home quickly, there are few better ways to do it than sell to a cash buyer.<\/p>\n
Avoid common mortgage contingencies<\/h4>\n
One of the reasons cash purchases are so beloved by sellers is because they come without common mortgage contingencies.<\/p>\n
Mortgage contingencies are contractual stipulations that must be cleared before you can get a home loan. These contingencies are a pretty big deal to sellers, especially since they\u2019re responsible for 37% of closing delays<\/a> and 21% of contracts that fall through<\/a> entirely.<\/p>\n
The two most common mortgage contingencies include:<\/p>\n
- \n
- Financing contingency<\/b>: The buyer\u2019s finances need to check out to lend them the money.<\/li>\n
- Appraisal contingency<\/b>: An independent appraisal company assesses the value of the home to make sure the mortgage company isn\u2019t lending the buyer more than it\u2019s worth.<\/li>\n<\/ul>\n
When you pay in all cash, you can forgo these contingencies, speeding up and simplifying the home purchase.<\/p>\n
Quicker, easier closing<\/h4>\n
Without lenders and contingencies in the mix, you\u2019ll save major time and stress with your all-cash home purchase. With cash, you can close on your new home in as little as one to two weeks and do it with much less paperwork. Plus, you can remove the uncertainty that a third party (the lender) may not approve the deal.<\/p>\n
You could save money on the home price<\/h4>\n
Depending on the specifics of the property and its location, sometimes you can save money on the purchase price with a cash offer. That speed and certainty that cash provides? Like we said, sellers love it, and sometimes they\u2019re willing to take a hit on the home price to get it.<\/p>\n
\u201cSometimes when you have a cash buyer, you can come in with a little bit lower price,\u201d shares Ramon Sanchez.<\/p>\n
However, he cautions, whether you save money on the listing price largely depends on the competition in your market and the priorities of the seller.<\/p>\n
Sanchez says that when a seller needs to find and purchase a new home to move into while they\u2019re selling their current home, they tend to go with the highest offer. This gives them more time to find a new home.<\/p>\n
On the other hand, when a seller needs to be out of a home quickly, they\u2019re probably more likely to turn to a cash offer, even if it\u2019s a bit lower.<\/p>\n
Fewer fees<\/h4>\n
Did we mention that most mortgages come with some pretty serious fees? If you go the home loan route, you can expect\u00a0lender fees to tack on up to 3% to your home purchase<\/a>.<\/p>\n
Although these fees are entirely optional, most major lenders do charge them. However, some lenders offer competitive fees so make sure to ask what fees to expect when shopping for a lender.<\/p>\n
These fees typically have to be paid at closing as part of your\u00a0closing costs<\/a>. If you pay in cash, you can avoid lender fees entirely.<\/p>\n
No interest<\/h4>\n
Another way you\u2019ll save money with an all-cash home purchase? You won\u2019t pay any interest on a home loan. That could save you huge over the years \u2014 tens, if not hundreds of thousands of dollars!<\/p>\n
Let\u2019s say you\u2019re purchasing a $250,000 home.<\/p>\n
You decide to go the 30-year fixed mortgage route. You put down 10%, or $25,000, and finance the remaining $225,000 at 3.8%.<\/p>\n
With interest, you\u2019d pay $377,425 for that home over 30 years.<\/p>\n
If you bought in cash, you\u2019d pay $250,000 today and save $127,425<\/i> on interest.<\/p>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/04\/buying-house-with-cash-luxury-666x381.png\")
<\/a>Source: (Ebun Oluwole \/ Unsplash)<\/figcaption><\/figure>\n Cons of buying in cash<\/h3>\n
Cash may be king, but buying a home in all-cash has some surprising downsides<\/a> to consider.<\/p>\n
You\u2019re not leveraging your money<\/h4>\n
When interest rates are low like they are in today\u2019s home market, it may not make sense to pay cash for a home, especially if you could put that money to better use elsewhere.<\/p>\n
\u201cMortgages are essentially really cheap for OPM \u2014 which is short for other people\u2019s money,\u201d explains top California real estate agent Jordan Clarke<\/a>. Using other people\u2019s money to buy a home allows you to invest your money better.<\/p>\n
Saving cash takes time, and you\u2019re missing out on equity in the meantime<\/h4>\n
Most homebuyers don\u2019t have several hundred thousand dollars lying around. They need to save to accumulate enough money to buy a home.<\/p>\n
But in some markets, it\u2019s simply not plausible to save up enough to buy a home in cash<\/a>. For example, in Tucson, Arizona, it would take a median wage earner 12.5 years to save up enough for a $150,000 starter home \u2014 and that\u2019s assuming home prices don\u2019t go up at all. In reality, they\u2019re currently rising 19.2% year over year.<\/p>\n
In many markets, rising home prices outpace what you\u2019re able to save. And even if you were<\/i> able to save enough cash to buy a home outright, and it took you more than a decade, you have to consider the opportunity cost: You could have instead spent that decade owning a home, paying down your mortgage (which grows your equity in the home), and adding to its value through improvements.<\/p>\n
Lack of liquidity<\/h4>\n
Another con of going all-cash on your home purchase? You\u2019re reducing your liquid assets. Once your cash is tied up in a property, it becomes much more challenging to access it.<\/p>\n
Equity is a great wealth-building tool for the long term, but what if you need cash today? You\u2019d need to sell or refinance your home to get any cash from it, which puts you right back in home loan territory.<\/p>\n
Sometimes it\u2019s better to have that cash on hand now in case of economic downturn or an emergency situation. Or perhaps that cash would better be spent on home improvements and upkeep.<\/p>\n
No mortgage interest tax break<\/h4>\n
Buying a home with a mortgage comes with a few distinct advantages, and one of them is the mortgage interest tax deduction<\/a>. You can deduct the interest you pay on your mortgage for a home up to $350,000 (if you\u2019re single), or $750,000 if you\u2019re married and filing jointly.<\/p>\n
If you buy in cash, you\u2019ll get no such tax break.<\/p>\n
Limits your budget<\/h4>\n
Cash limits your budget since you\u2019re restricted to, well, the amount of cash you have. If you were to use some of that cash for a down payment instead, you could afford a pricier home.<\/p>\n
Of course, you\u2019ll have to make mortgage payments and pay interest if you go that route, but it might be worth taking on a mortgage if you can get into a nicer home that fits your longer-term needs.<\/p>\n
You could actually end up paying too much<\/h4>\n
It seems counter-intuitive that you could end up paying too much on a cash purchase, but hear us out.<\/p>\n
While it\u2019s true you may be able to knock a little off the purchase price with cash, there\u2019s also another side to consider: It can be a risk to forgo the appraisal.<\/p>\n
The lender requires an appraisal so they don\u2019t overlend on the property. But as a buyer, the appraisal protects you, too.<\/p>\n
Sellers love to skip the appraisal \u2014\u00a0it pretty much only signifies a potential roadblock to them. But it can be less advantageous for you, the buyer, to skip the appraisal \u2014\u00a0especially in a hot markets where bidding wars are the norm, which can lead to price inflation.<\/p>\n
\u201cI always recommend buyers make the investment and make sure you get an appraisal done. You still want to know what you\u2019re buying,\u201d Ramon Sanchez advises.<\/p>\n
You can even include an appraisal contingency in your offer, but beware that this could make your all-cash bid slightly less attractive to sellers. The ease and quickness is pretty much the point<\/i> for them. Removing it could mean a less competitive offer.<\/p>\n
![\"Physical](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/04\/buying-house-with-cash-money-666x381.png\")
<\/a>Source: (Katie Harp \/ Unsplash)<\/figcaption><\/figure>\n <\/div>\nHow do you pay cash for a house?<\/h2>\n
Paying for a home in cash sounds great, but what are the mechanics like<\/a>?<\/p>\n
It\u2019s pretty simple, really: It\u2019s buying a house (or land<\/a>!), but without the mortgage. We\u2019ll get to the process of buying a home<\/a> in cash in a minute!<\/p>\n
Can you buy a house with physical cash?<\/h3>\n
But first, you might want to know: Are we talking physical cash here? Like, can you show up on closing day with a suitcase full of cash<\/a>?<\/p>\n
Technically, yes, you can. But should<\/i> you? No, you most likely should not try to buy a home with physical cash. Carrying around that much cash is risky, and counting such a large sum can be challenging.<\/p>\n
\u201cCash doesn\u2019t have a place in real estate \u2014 no one wants a pile of cash to count,\u201d shares top Tennessee real estate agent Sherry Ludecker<\/a>.<\/p>\n
Most all-cash buyers stick to wiring the money, just like you would if you were buying a home with a mortgage.<\/p>\n
<\/div>\nWhat\u2019s the process for buying a house with cash?<\/h2>\n
Step 1: Make an offer<\/h3>\n
To make an all-cash offer<\/a>, you\u2019ll need proof of funds. That usually means you want your cash in one account. The financial institution will issue you a letter stating that the funds are available. You\u2019ll submit this letter to the seller with your offer.<\/p>\n
Before you take this step, it\u2019s probably a good idea to talk to a trusted financial advisor to make sure you understand the implications of cashing out any assets or accounts. You\u2019ll also want to make sure you have a great real estate agent<\/a> on your side to help you create a competitive offer strategy.<\/p>\n
Step 2: Deposit your earnest money<\/h3>\n
Your offer was accepted \u2014\u00a0congrats! If your bid includes an earnest money deposit<\/a> (a good faith upfront deposit you make to show the seller you\u2019re serious about buying their home), you\u2019ll need to write that deposit check at this point. The EMD check is held in escrow while the purchase is finalized.<\/p>\n
Typically, a cashier\u2019s check will do, but make sure to have your agent double-check on acceptable forms of payment.<\/p>\n
Step 3: Do your due diligence<\/h3>\n
Now you\u2019ll do your due diligence on the property, including:<\/p>\n
- \n
- Title search<\/b>: To verify that no one else can make any claims on the property.<\/li>\n
- Home inspection<\/b>: To ensure the home is in good shape and all systems work properly.<\/li>\n
- Appraisal:<\/b> To confirm the property\u2019s value so you can make sure you\u2019re making a good investment and not overpaying for the home.<\/li>\n
- Land survey<\/b>: To establish your property lines. [This one\u2019s optional, but it may be important depending on the property (they\u2019re particularly helpful when you\u2019re buying large rural properties to establish your lot lines). Consult with an agent or attorney to decide if a survey is the right step for you.]<\/li>\n<\/ul>\n
Just because you could<\/i> skip some of this due diligence doesn\u2019t necessarily mean you should<\/i>.<\/p>\n
Remember: This step is how you\u2019ll protect your investment. And when you\u2019re paying cash, you\u2019re the one shelling out for 100% of the investment. So it\u2019s not the place to skimp on your due diligence!<\/p>\n
Step 4: Secure homeowner\u2019s insurance<\/h3>\n
Technically you don\u2019t need<\/i> to get homeowner\u2019s insurance<\/a> when you pay for a home in cash (mortgage lenders require it), but why skip it? If something happened to your home, you\u2019d be on the hook.<\/p>\n
Homeowner\u2019s pay an average of $1,445 annually for their insurance premiums<\/a> \u2014\u00a0or around $120 per month. Considering the cost you could shoulder if your home was damaged by a weather event or experienced a fire, homeowner\u2019s insurance is relatively inexpensive for the protection it provides.<\/p>\n
Step 5: Wire the money and close<\/h3>\n
Once everything checks out, and you\u2019ve secured insurance, you\u2019re ready to close!<\/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 explains top San Diego real estate agent Daniel Beer<\/a>.<\/p>\n
\u201cIt\u2019s the simplest process you can have. It\u2019s cash! You just wire the money, and you close.\u201d<\/p><\/blockquote>\n
Make sure you check with your financial institution on wiring timelines \u2014 some cash deals can get held up by wiring delays<\/a>.<\/p>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/04\/buying-house-with-cash-neighborhood-666x381.png\")
<\/a>Source: (Maximillian Conacher \/ Unsplash)<\/figcaption><\/figure>\n <\/div>\nTop tips to compete with cash offers<\/h2>\n
\u201cOkay,\u201d you might be thinking, \u201ccash sounds great \u2014 unfortunately, I don\u2019t have that much.\u201d That\u2019s fair! Very few homebuyers do have that kind of money lying around. That\u2019s why around 87% of homebuyers use financing<\/a>.<\/p>\n
If you\u2019re in a competitive market where cash offers are the norm, there are still plenty of ways to compete. Let\u2019s walk through a few.<\/p>\n
- \n
- Use a lender with a local presence.<\/b> They have strong local relationships with agents, and those connections can help you get the deal done.<\/li>\n
- Get underwritten upfront.<\/b> When your lender verifies your finances upfront before you make an offer, your financing is less likely to fall through. Sellers love more certainty!<\/li>\n
- Give the seller what they want. <\/b>Find out what\u2019s most<\/i> important to the seller: closing timeline, offer amount, ease of transaction (for example, they don\u2019t want to make repairs), and so on. Try to meet their needs with your bid.<\/li>\n
- Offer more.<\/b> This may not be possible in all scenarios, but using a mortgage might mean offering a bit more than you would if you paid cash. So long as the appraisal checks out, this might be one way to overcome the cash competition.<\/li>\n
- Use a cash purchase program.<\/b> What if we told you that you could make an all-cash offer, but still use a mortgage to finance your home purchase? It\u2019s not magic; it\u2019s our HomeLight Cash Offer program<\/a> \u2014 and it\u2019s life-changing for buyers in competitive markets.<\/li>\n<\/ul>\n
Whatever route you decide to go with your home purchase \u2014\u00a0mortgage, all-cash, or a little bit of both with a cash purchase program \u2014\u00a0it always pays to have a top real estate agent on your side<\/a> who can guide you safely through the process.<\/p>\n
Header Image Source: (Investment Zen<\/a> \/ Flickr via Creative Commons Legal Code<\/a>)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"
Top real estate experts unpack buying a house with cash: why cash is king, how cash purchases work, and why cash might (or might not!) be the right path.<\/p>\n","protected":false},"author":123,"featured_media":23528,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"cybocfi_hide_featured_image":"","footnotes":""},"categories":[192,629,634],"tags":[796],"class_list":["post-23508","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-for-buyers","category-home-financing","category-paying-cash","tag-cash-offer-on-a-house"],"acf":[],"yoast_head":"\n
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Sellers love more certainty!<\/li>\n
- Home inspection<\/b>: To ensure the home is in good shape and all systems work properly.<\/li>\n
- Appraisal contingency<\/b>: An independent appraisal company assesses the value of the home to make sure the mortgage company isn\u2019t lending the buyer more than it\u2019s worth.<\/li>\n<\/ul>\n
- Financing contingency<\/b>: The buyer\u2019s finances need to check out to lend them the money.<\/li>\n