How to Buy a House with a Cash Offer
Though cash offers have always been the preferred type of payment due to their simplicity and certainty, not every homebuyer feels ready or able to do them. And though the market has cooled due to rising interest rates, offers made on a dream home with no financial contingencies to a lender are still more attractive to sellers. After all, not having to deal with the potential for failed financing gives sellers the assuredness that both parties will make it to the closing table.
But what if we told you that it is possible to be a cash buyer 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.
Why Buy a House with Cash?
At Marketplace Homes, we do everything we can to help our clients become homeowners by taking away as many contingencies as possible. Eliminating a financing contingency by bringing an all-cash offer to the closing table puts your offer above others. Here are some reasons why cash is best when buying a house:
1. Fewer closing costs.
If you’re looking for a way to reduce closing costs, then eliminating loan origination fees, underwriting fees, and mortgage insurance payments from a mortgage lender are the main perks of paying cash.
2. Faster closings.
You can set an earlier closing date when you don’t have to wait on financing, which takes 30-45 days. Skipping the home loan process greatly expedites the closing process, making cash sales awesome.
- Tip: When you pay all cash, not only can you get a faster closing, but you can take a risk and offer below asking price. May sellers want a sure thing, and cash home buyers bring that certainty that is worth the discount.
3. Simpler contracts.
Real estate agents love to see contracts with little or no contingencies. The less variables upon the home sale, the better! If you can cut out financing and/or the home sale contingency, your offer will look a lot more competitive.
4. No interest payments.
Mortgage payments add up to a much larger amount than the original purchase price due to interest. But when you pay in all cash, you don’t have to pay all the interest, which saves you hundreds of thousands of dollars.
Bonus: You don’t have to worry about loan preapproval, your credit score,
5. Interest rates have no impact on you.
You don’t have to rush a home purchase before the Fed decides to change interest rates when you have a lump sum in hand. In short, the housing market’s trends have less effect on you.
How to Buy a House with a Cash Offer
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 refinance. 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.
I know, this is much easier said than done. But it is possible. Saving 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 people get a leg up by getting creative:
1. Sublet your house:
Get a roommate or rent out a room or basement in your primary residence to decrease the cost of living.
2. Old-fashioned work:
Get a side hustle and devote all your earnings to savings. Do NOT get distracted and make other big purchases.
If you’ve got a knack for investing, speak with a financial advisor to find ways to meet your financial goals faster compared to having it sit in the bank.
4. Pocket your tax returns:
though large refunds are tempting to spend, save or invest large returns for your future. After you build an emergency fund, throw the rest of your margin into savings.
5. Use private loans:
Getting loans from friends or family can give you enough money for a cash purchase. These kinds of arrangements should still have documentation prepared with a lawyer with a payback plan to give the lender peace of mind.
6. Get even more creative:
If you’re not a first-time homebuyer, you can pursue other creative solutions. For example, use one of Marketplace Homes’ special incentive programs like Sell & Stay to unlock equity in an existing home to pay cash for a new home. This option works the best when you can combine savings from your personal finances with the cash-out.
How to make an offer on a home with cash
To buy a house with all cash, you won’t need to apply for a mortgage loan, but you do need to provide proof of funds and income. These are usually bank account statements, tax paperwork like W-2s, and paystubs. Connect with a realtor to get more details about the process of buying a home with cash so you can be prepared for homebuying expenses like the earnest money deposit, home inspection, appraisal, commissions, and legal fees.
What if you can’t pay all cash, but can make a large down payment?
If you can pay more than the bare minimum down payment, you still reap many financial benefits. Paying down the loan enough lowers your borrowing interest rate. For example, if you have $200k in cash and the house is worth $300k, then you will just need financing for $100k, 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. Remember, every small step leads to bigger things down the road if you just stay consistent.
- Tip: This arrangement works wonderfully with our guaranteed purchase program, allowing you to cash out and use the proceeds toward a new build.
How to Buy a House with a cash offer: The Bottom Line
Want to learn more about the home buying process? Contact Marketplace Homes today to learn how we help people make big financial moves with confidence.
Your real estate goals are easier to accomplish 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.
Alicia Persson is a real estate content/SEO writer at Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined Marketplace, she was a freelance writer for 7 years, leading to a specialization in real estate and home living content for boutique digital marketing agencies. During her writing years, she learned the basics of SEO and gained experience writing for many different clients, making her highly versatile at creating diverse content.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When Alicia is not writing, she plays keytar and sings in a local 90’s rock cover band, or she spends time with her amazing family.