“How do you buy a house with cash” was the question everyone was asking in the red-hot sellers market of late 2021 to mid-2022. This cut-throat seller’s market made cash king – even in standard real estate transactions. Though cash offers have always been the preferred type of payment due to their simplicity and certainty, not every buyer feels ready or able to do them. And though the market is showing some sign of cooling due to rising interest rates, offers made with no financial contingencies are still more attractive to sellers. After all, not having to deal with the potential for failed financing gives sellers the certainty that both parties will make it to the closing table.
But what if we told you that it is possible to make a cash (or mostly cash) offer even when you’re not a recipient of intergenerational wealth? As with all worthy ventures, positioning yourself to make a cash offer takes some creativity and hard work. It’s easier to accomplish this when you work with a full-service real estate brokerage like Marketplace Homes. Here, we offer at-scale real estate solutions that are difficult to find elsewhere.
Why Buy a House with Cash?
At Marketplace Homes, we do everything we can to help our clients acquire properties with as few contingencies as possible. Eliminating a financing contingency by bringing all cash to the closing table puts your offer above others. It also gives you a significant financial advantage. Here are some reasons why cash is best when buying a house:
- Fewer closing costs. If you’re looking for a way to reduce closing costs, then eliminating loan origination fees, underwriting fees, mortgage insurance payments, and inspection fees are the main perks of paying cash.
- Faster closings. You can set an earlier closing date when you don’t have to wait on financing, which takes 30-45 days. You can close even quicker if you buy without inspections.
- Cleaner contracts. Real estate agents love to see contracts with little or no contingencies. If you can cut out financing and/or the home sale contingency, your offer will look a lot more competitive.
- No interest payments. Loans paid over time end up being a much larger amount than the principal due to interest. But when you pay in all cash, you don’t have to pay all the interest, which saves you thousands of dollars.
- Interest rates have no impact. You don’t have to rush to buy a house before the Fed decides to raise interest rates when you have a lump sum in hand.
How to Buy a House With Cash
So now that you know the benefits of buying a house with cash, how do you do it? Our real estate experts can advise you on the best ways to prepare. Here are some of the methods our team would advise:
- HELOC or Cash-out Refinance: One of the most common ways people start investing is through accessing a home equity line of credit (HELOC) or cash-out refinancing. In many cases, you can borrow up to 80% of your home’s value to buy property. Though it is a loan on your current home, you get a lump amount of cash in hand that enables you to make cash offers.
- Save money: This is the most traditional way to get cash. By living smaller than your income, you can save money over time. This method works best if you can live cheaply for a few years while taking in significant income. However, since this method can take a long time for the standard buyer, many use the equity from a starter home, for which they used a loan, in addition to savings to pay for the new house in full.
- Private loans: Getting full-cash loans from friends or other people willing to invest in a joint venture can give you the cash you need to close.
- Get creative: Use one of our special incentive programs like Sell & Stay to unlock equity in an existing home while not wasting money and time moving twice.
What if you can’t pay all cash, but have significant equity?
If you can cash out and pay down half or more of your loan with equity, you still reap many financial benefits. Even if you do not have the full amount, you can pay down the loan to reduce its total interest rate and decrease the loan’s duration. For example, if you have $250k in cash and your loan is $300k, then you will just need financing for $50k, which can be paid off relatively quickly with a steady income. On top of that, you’ll avoid paying mortgage insurance, which lowers your monthly payments.
When it comes to loan interest, you’ll also save. Paying mostly cash shaves down your loan so that you don’t have to pay all the interest you would have to pay if you took out the total loan amount. You’ll be mortgage-free sooner and be able to use your paid-off property for more financial benefits.
- Tip: This arrangement works wonderfully with our guaranteed purchase program, allowing you to cash out and use the proceeds toward a new build.
Want to learn more about unlocking your home’s potential to make competitive cash or mostly cash offers? Are you a real estate investor who wants more ways to grow your portfolio? Contact Marketplace Homes today to learn how we help people make big financial moves with confidence.
Alicia Persson is the real estate content writer for Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined MH, she was a freelance writer for 7 years, providing real estate and home living content for boutique digital marketing agencies.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When she is not writing, she plays keytar and does female lead vocals in a local 90’s band or spends time with her amazing family.