Josephine Nesbit7-Minute Read
UPDATED: June 02, 2023
If your piggy bank is full and it’s time for a move, you could have an opportunity to buy a house with cash.
There are several advantages to buying a house with cash, including winning bidding wars and closing quickly on your dream home. However, there are drawbacks as well. Knowing the pros and cons of a cash purchase is an essential part of making the right move.
Buying with cash is common among investors, downsizing boomers and – increasingly – first-time home buyers. Even if you don't fall into any of these groups, buying a house with cash is something any prospective home buyer should consider.
Absolutely! You can buy a house with cash. Oftentimes, it’s more appealing to the seller because it promises a faster and simpler closing. Buyers can benefit from the leg up in a competitive housing market, avoid mortgage fees and interest rates and save money in the long run. Taking out a mortgage is, of course, an option as well. But for people that can afford it, buying a house with cash has some real, tangible benefits.
Buying a house with cash is more common in a seller’s market, which means that there is a high demand for an extremely limited pool of homes. By offering all cash, buyers can stand out in a competitive market. In a multiple-offer situation, sellers look at a number of different variables between offers, from inspection timelines to appraisal guarantees, to financing terms. When it comes to these last two factors, cash is king.
Here are more details on common reasons a buyer makes a cash offer:
Sometimes, a mortgage may be a better choice for some buyers. Here are common reasons to get a mortgage instead of buying a house with cash:
Buying a house with cash is fundamentally different from buying a house with a mortgage. For starters, cash buyers can skip the preapproval process. This can be a time-consuming and financially invasive process for buyers, so bypassing it completely is appealing. Getting to the closing table means simply completing the inspection process and making sure all the title work is in order.
Here are some requirements that must be met when buying a house with cash:
Buying a house with cash is easier than going through the mortgage process, but it doesn’t mean you just hand over the funds and get the key. Here’s the step-by-step process.
Cash buyers must provide a proof of funds letter from a bank when making a cash offer. Talk to the financial institution holding your money and ask if they’d provide a letter stating you’re able to make a cash purchase up to the specified amount. Attach this document with your offer letter.
Offer a high earnest money deposit when making a cash offer. Earnest money protects the seller if the buyer decides to back out of the deal. This gives the seller extra reassurance that you’re not going to walk away and that the deal is likely to close. Earnest money funds go back to the buyer once all conditions in the contract have been met.
With bidding wars being the norm, many buyers are going to great lengths to secure their next home. This includes waiving the home inspection contingency and moving along toward finalizing the sale. Don’t do it. A home inspection before closing is essential to make sure you know what you're getting yourself into.
Even if you waive the inspection contingency, you should still do a home inspection. You can still walk away from the purchase if the repairs needed are more extensive – and expensive – than you are ready for, but you might lose your earnest money deposit. Always be open and honest with your REALTOR® when thinking about backing out of a home purchase.
Because you aren’t financing the home with a mortgage, the closing process is much quicker. This can reduce the closing time from a month or longer down to a week or two.
When you get to the closing table, bring your ID, a cashier’s check for the purchase price and funds to cover the closing costs.
Buying a home with cash has its perks, but there are disadvantages too.
The biggest advantage of cash is that it’s quicker and easier than a mortgage, but there are other reasons why buyers and sellers prefer all-cash deals.
Buying a house with cash may sound easy, but there are some things to consider before writing that check and moving into your new home.
Here are frequently asked questions on buying a home with cash.
Without a mortgage, you can still be foreclosed on and lose your home if you don’t pay your property taxes. When homeowners don’t pay property taxes, the amount due becomes a lien on the property and the home acts as collateral for the debt. Each state has different laws that specify how long the foreclosure process can take.
According to researchers at the University of California-San Diego, cash buyers have paid 11% less to purchase a home over the past 40 years than those using a mortgage. Cash buyers also save a substantial amount in interest. If you were to finance a $300,000 home (using a 30-year fixed-rate mortgage at 6% interest), you’d pay $347,514.57 in interest over that time.
Even with bad credit, buyers can still qualify for certain types of loans. For example, you can still qualify for a VA loan or FHA loan with a credit score as low as 580.
There are both risks and rewards to making a cash offer when buying a home. Weigh the pros and cons before making the best decision for your unique situation. Ready to make a move? Start the process today with Rocket Mortgage.
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