A cash offer is an all-cash bid that indicates a buyer wants to purchase the property without a mortgage loan or other financing, and is especially relevant in a busy seller’s market. Sellers find cash offers more attractive because they mean no buyer financing fall-through risk and, usually, a faster closing time.
What makes a cash offer different?
According to Trulia (https://www.trulia.com/guides/cash-offer-on-house):
You don’t need an appraisal (but it’s smart to have one)
- Mortgage lenders require a home appraisal so they know for sure that the home is worth at least as much as they’re being asked to finance. That reduces their financial risk in the case of foreclosure. With a cash offer, there’s no lender so no one to require the appraisal. But cash buyers might consider getting an appraisal done anyway. Just like a lender, you don’t want to end up with an asset that’s worth less than you paid for it.
A cash offer goes faster, with less risk for the seller
- Underwriting a mortgage is one of the lengthiest steps in the timeline of buying a house. It can take 30 to 60 days. And there’s always the chance that some change in the buyer’s finances since pre-approval will cause the lender to deny them the loan. Without the mortgage underwriting process, sellers save time and avoid any risk.
A cash offer is a stronger offer
- A seller may choose a cash offer over mortgage offer even if the buyer with a mortgage offers more. The reasons are simple: they’ll close sooner (meaning they’ll get paid sooner), and without the mortgage underwriting and appraisal process there’s less of a risk that the deal will fall through.
Cash buyers need to show proof of funds
- Although it’s not quite as complicated as getting approved for a mortgage, cash buyers still need a financial institution’s help to make their offer stick. Cash buyers must show the seller some kind of proof of funds, like a bank statement or certified financial statement. Then the seller can rest easy knowing the buyer has the necessary cash for the sale.
Cash sales have lower costs
- The costs of buying a home can be much lower when buying with cash. In a traditional sale, you have to pay a lot of bank-related fees during closing, including credit check costs and origination and processing fees. And, of course, without a mortgage, cash buyers don’t pay any interest, saving tens of thousands of dollars over the years.
Cash buyers can make an offer on any house
- With some types of mortgages, like FHA or USDA loans, buyers are restricted to certain kinds of houses in certain locations or in a certain condition, but cash is always welcome anywhere.
The closing process on a cash offer is simpler
- As a buyer, you’ll sign the settlement statement, title, and deed, hand over a cashier’s check (or wire the money), and receive your keys. Without financing in tow, the paperwork is reduced significantly. Your closing costs are also lower since there aren’t any lender fees attached.
How a cash offer is the same as a mortgage offer
- Real estate agents are still important. Cash buyers may not need a mortgage lender, but they should still find a real estate agent to work with. Agents are invaluable in the nitty-gritty of negotiations, drawing up your purchase agreement, getting an appraisal, and more.
- And, as always, the seller pays the agents’ fees, so there’s no reason not to take advantage of an agent’s expertise.
It’s wise to have an inspection done.
- A speedy sale might be a cash buyer’s advantage, but it’s still smart to have a home inspection done before you close. The inspection is there to protect you from unwanted surprises in your new home—and if any surprises do turn up, you can negotiate a lower price and use some of your cash savings to fix up the house.
Cash buyers pay some of the same fees
- Some home buying fees are the same whether you have a mortgage or make a cash offer. You’ll need to submit an earnest money deposit and pay transfer taxes, escrow fees, and other closing costs. And don’t forget about homeowners insurance, HOA fees, and taxes. Sometimes these ongoing homeownership costs are rolled into your mortgage payment, so if you buy with cash, make sure you are prepared to make the payments on your own.
Pros and Cons of a cash offer
- They give sellers more confidence
- They can offer a faster closing period
- Your credit score doesn’t factor into the process
- You don’t need a home appraisal
- You can save money over time (no interest payments)
- You reduce the paperwork and documentation required
- It takes a significant amount of money
- You’ll limit your liquidity and tie up your wealth in one asset
- You won’t be able to use mortgage-related tax deductions
Bottom Line: Keep in mind that each real estate transaction is unique, making it necessary to have an experienced real estate agent on your side to help you navigate the home buying process.
50 Real Estate Investing Calculations: Cash Flow, IRR, Value, Profit, Equity, Income, ROI, Depreciation, More, by Michael Lantrip
Should You Buy a House With Cash?
Is buying a house with cash right for you?
St. Petersburg Communities
If you’re interested in any of these of communities or live in one of them and are thinking of selling, call Estelia today!
Greater Pinellas Point
Historic Old Northeast
Historic Roser Park
Isla del Sol