How to purchase a home using cash
Keen on claiming a home but worried that you’ll get iced out or outbid by competitors vying for the same property? That’s a valid concern, considering how much continued demand there is for the low supply of increasingly costly homes on the market today.
But there’s a way to practically guarantee that your offer will be accepted pronto: Put up greenbacks for that domicile instead of financing the purchase with a mortgage loan, if you can afford it.
“A cash transaction is when someone purchases real estate using cash rather than taking out a loan to complete the purchase,” says Jonathan Breton, a Realtor with Roost Real Estate at eXp Realty in Charlotte, North Carolina. “This is possible when a buyer has enough funds — through savings, investments or other real estate sales — to cover the purchase of the home for sale.”
Per the National Association of Realtors, 25% of home sales in the U.S. were cash transactions in February 2022. Which means a lot of buyers are putting their money where their home-hunting heart is and pursuing this strategy.
The advantages of offering cash are plentiful.
“Sellers are more likely to accept a cash offer, especially if there is a bidding war,” notes Aviva Pinto, managing director at Wealthspire Advisors in New York
City. “Also, the deal will close more quickly, as no inspection, appraisal or underwriting is required. It eliminates the need for a bank or mortgage lender to be involved, and no preapproval is needed. No loan means no loan fees or points and fewer closing costs, as well.”
That first benefit cited above is the most important.
“You will look very attractive to a seller when you offer cash because that minimizes issues arising that could cause you to back out of the transaction due to funding falling through or not getting approved for a loan,” Breton adds.
Rachel Bennett, a real estate agent and homebuying expert with Orchard, echoes those thoughts.
“Cash offers are four times more likely to get accepted by a seller these days,” she says.
The drawbacks to purchasing a home entirely with cash are worth considering, however.
“Interest rates have gone up lately, but they remain historically low. Over the long run, you could make more money investing that cash in the stock market or elsewhere by financing the home with a mortgage loan,” Pinto explains. “In addition, using all cash may leave you financially vulnerable; you may not have enough cash on hand for emergencies or if you need to make major repairs or renovations.”
Furthermore, your mortgage interest paid may be tax-deductible; cash buyers don’t get to take advantage of that perk.
Cash transactions work differently than purchases involving a mortgage loan.
“Once a seller accepts your cash offer, your title company or closing attorney will work with you to open title, research the history of the property, and finalize sale documents. Once this process is complete, you can move forward quickly with closing,” Bennett says. “A cash deal can often close within 14 days, and sometimes the turnaround can be even faster. Title documents, inspections and paperwork can slow down this process, but a cash offer will still typically close much more quickly than a financed purchase, which usually takes 30 days or more.”
Don’t let the “cash” part of this phrase fool you, however: actual dollar bills are usually not exchanged here. Typically, a wire transfer of funds from the buyer’s bank account to the seller’s account is executed to secure the transaction. Or, a certified bank check can be used at closing.
“Usually, a wire transfer is done 24 hours before closing in order for the closing company to have enough time to verify that all funds have been transferred and the buyer is good to close,” says Nathaniel Hovsepian, owner of The Expert Home Buyers. “I have actually heard of one buyer literally bringing dollars to the closing table, but that was on a very small purchase price for a home where it was easy to count the money. This is not recommended.”