- Advantages of Buying a House with Cash
- Disadvantages of Buying a House with Cash
- Step-by-Step Process for Paying Cash for a House
- Decide if Acting as a Cash Buyer is Right for You
How to Buy a House with Cash
More than a third (34.1%) of home purchases in late 2023 were made with cash. This is a significant uptick compared to recent years and directly correlates to higher interest rates.
When rates were lower, more people could afford mortgages and become homeowners. The higher rates are pricing some buyers out who would have needed a mortgage to own their homes.
Even a buyer who could choose between a cash purchase or a mortgage is more likely to choose cash with these interest rates. Buying a house outright is a better deal right now instead of keeping that money in their savings.
Buying a property with cash is similar to completing the purchase with a mortgage, but there are a few key differences. Learn how to buy a house with cash and see if this option is right for you.
Advantages of Buying a House with Cash
There are several benefits of paying cash for a house if you can. Here are a few reasons to become a cash buyer as you start to look at properties.
- The transaction is easier. You can write a check to the seller once the contingencies are met. This is much faster than waiting for a mortgage application to go through.
- You pay less for the house. When you have a mortgage, you will pay the purchase price, plus any interest you owe to the bank during the time of the loan. This makes the home purchase more expensive in the long run.
- You can negotiate with sellers. Some sellers might accept a lower bid if they know you can pay in cash. They appreciate the stability of knowing you won’t apply for a mortgage that falls through. This means you save even more on the home purchase.
- You don’t have to keep up with monthly payments. It is easier to save money or budget for a major expense if you don’t have a regular mortgage payment.
- You own the house outright. You don’t have to worry about missing payments and potentially falling into foreclosure – which could cause the bank to seize your house.
As a whole, buying a house with cash is faster and easier than going through the mortgage process. It also helps you save money in the long run.
Disadvantages of Buying a House with Cash
Despite the benefits of paying cash for a house, there are some disadvantages to choosing this option. Here are a few reasons you might not want to pay cash.
- It’s a significant upfront financial requirement. The median home cost in the United States is more than $400,000 in 2024. Very few people have that amount of cash in their bank accounts.
- Cash can limit your home size. You might end up with a smaller house that you bought with cash instead of living comfortably in a bigger home that was purchased with a mortgage.
- You could lose your savings. Some people put all of their money into their homes, which means they don’t have anything left over to cover emergencies.
- You miss out on mortgage interest deductions. People with mortgages can deduct the interest they pay from their taxes, which helps them save money. You would not get this benefit if you bought your house with cash.
These risks will vary from person to person. Some people can enter the market as cash buyers easily, while others have to pool their resources to get the funds they need.
Step-by-Step Process for Paying Cash for a House
If you can afford the listing price and are ready to own a home, you can take the first steps to enter the market as a cash buyer.
Here’s how to buy a house with cash in the most streamlined process possible.
Hire a Real Estate Agent
The first step if you want to avoid mortgage payments by buying with cash is to hire a real estate agent in your area. Tell the agent you plan to hire that you will make a cash offer and do not need to work through the mortgage process.
An experienced agent will know how to highlight that fact to sellers so your bid gets noticed. Your Realtor can also learn which sellers would be interested in cash buyers. These are homeowners who want to move quickly and don’t have time to wait for a buyer to secure financing.
To find an agent you can trust, use FastExpert. You can read the profiles of Realtors in your area and find the best ones for your needs. You can also reach out and request interviews with these real estate agents to make sure they are a good personality fit.
Use this guide to develop a list of questions for your Realtor before you agree to work with them. We recommend interviewing at least three agents before hiring the best one.
Prepare Financial Documents
Some sellers are wary of cash buyers because they want to know that the buyer has enough cash to purchase the home. If you are making a cash offer, you need more in your bank account than just the purchase price. You will need additional savings to cover the costs of living in the home and other nest egg accounts like retirement savings.
Gather your financial documents to prove that you can buy the house in cash. This could be as simple as sending a bank statement to your real estate agent. If you are selling your current house and plan to buy another, you could share documents including your contract agreement, remaining mortgage loan, and bank statements to prove that you will have enough cash once the deal goes through.
These financial documents are known as proof of funds. You will need to present them during the bidding process to show that your wealth will cover the purchase and closing costs.
If you have multiple accounts (like separate bank accounts with your partner), consider consolidating your house funds into one bank account to make the proof of funds process easier.
Search for a Property
Once you have your finances in order, you can move forward with the homebuying process. This is the fun part of actually touring houses and finding properties you like. Here are a few tips to narrow your search.
- Find the neighborhoods you like. Have an idea of the exact area where you want to live. Consider your commute, driving distance to entertainment, and the types of properties in the area.
- Know which amenities are essential. Identify the features you refuse to compromise on. These could range from a two-car garage to a house that is within walking distance of a school. Take your time looking so you get the house that you need.
- Consider the resale value. The real estate market is volatile, but you can still look for a house that has a good chance of appreciating in value in the future.
- Provide feedback to your Realtor. Share what you like or dislike about each property with your real estate agent so they can recommend similar houses and improve their home search for you. The more detailed the feedback, the better.
If you fall in love with a house that is out of your cash offer range, consider working with a mortgage lender to secure a loan. It is better to be happier in a house that you love, even if it means making monthly mortgage payments, than to own a house you don’t like.
Make a Competitive Offer Based on the Purchase Price
Once you find a house you love, you can officially make your cash offer. The contract you send to the seller will highlight how you plan to pay for the property in cash and list your price. It’s up to the seller to accept, decline, or counter your bid.
Consult with your Realtor to determine the ideal bid for your potential property. Because you are paying with cash, you might be able to make a more competitive bid. However, you don’t want your offer to be too low or the seller could reject it completely.
If you are bidding in a hot seller’s market, your offer might be up against several others and you might not have the luxury of making a low bid. In some cases, you might even have to bid above the listing price if you really want the house.
If the seller provides a counteroffer, it shows that they are interested in working with you. You can keep negotiating back and forth until you reach a fair price for the property. From there, both parties will sign the purchase agreement and move forward with the cash-buying process.
Perform Due Diligence and Inspections
Even if you make an all-cash offer on your house, you still need to complete the same due diligence as if you were working with mortgage lenders. Within your offer, request an appraisal and an inspection of the home.
This can alert you to any overpricing on the seller’s part or hidden issues that need to be addressed. The last thing you want is to pay for a house in cash and then realize it needs several costly improvements.
The appraisal is also important for financial reasons. If you overpay for a house, you might have a hard time selling it for a profit when the time comes. There are also tax implications to overpaying. You will pay higher property taxes because the home’s value is considered higher than it is. Make sure you are getting a fair price for the home.
Most appraisals and inspections occur within a week or two of the seller accepting the offer. After these actions are complete, you can move forward with the closing process.
Close the Deal
After the due diligence is complete and both parties are in agreement on the home sale contract, you can move forward with the closing process. This is usually much faster if you are cash buying because you don’t have to wait to get a loan to be cleared to close. Instead, you can arrive at the appointment with a check for the sale price and your accounts ready to handle any closing costs.
Along with a check to cover the closing costs, you will also want to bring a photo ID (like a passport or driver’s license) and proof of home insurance. Your real estate agent and title company should put together the closing documents for you and walk you through each one.
Make sure your Realtor will be present at the closing appointment. They will make the process easier and take steps to overcome any issues.
Legal and Tax Implications
Once the house is yours, you can take steps to protect this asset and your own accounts. Meet with a financial advisor to go over any legal and tax requirements related to the property. Here are a few things they might review:
- Property taxes: you will need to pay these yourself instead of asking your lender to do it for you. Ensure you have an idea of your annual tax bill to budget appropriately.
- Homestead exemptions: See if you qualify for a homestead exemption in your state. This is a property tax credit that supports people in their primary residences.
- Beneficiaries: now is a good time to update your will to include the house. Review your beneficiaries and make sure your end-of-life care is planned for.
The sooner you get these documents in order, the better protected your property will be. In the event something happens to you or the house, your lawyer or advisor will know what to do.
Once you purchase the home and all of your documents are in order, you can start settling into the property. The only thing left is to enjoy your new house. You can start updating the interior to match your tastes or investing in outdoor improvements to increase your property values.
Whether you buy a house with a mortgage or a cash purchase, it’s important to continue investing in the home and protecting its value. This will make it easier to sell in the future. Everyone moves at a different pace, but most experts recommend waiting to sell your home until you at least break even, if not turn a profit on the sale. This includes the moving costs and Realtors fees you will have to pay during the sale process.
You might enjoy your cash purchase for a few years or a few decades, but keep your home values in mind as long as you live there. For most Americans, the home is the biggest financial asset they have.
Decide if Acting as a Cash Buyer is Right for You
Once you know how to buy a house with cash, you can take steps to enter the market and find your dream home. Use this guide to evaluate your finances and determine whether making a cash offer is right for you.
Even if you are buying a house with cash, you still need to follow the same steps to make sure the property is in good shape and the deal is fair.
To streamline the purchase process, find a Realtor you can trust. A reliable real estate agent will highlight the fact that you are a cash buyer and use that information to negotiate a good deal on the house you want to buy. At FastExpert, we pair buyers and sellers with the right agents.
You can hire a Realtor who works with cash buyers and knows how to get their bids noticed. Try our services today.