Knowing how to buy a house in cash can potentially give you an advantage over the competition. Keep an eye on your budgeting while working with a team of capable housing and financing experts. Crafting a cash offer may allow you to stand out from the crowd when buying a home. Compare the various advantages and disadvantages to understand if buying a house in cash is right for you.
Can You Buy a House with Cash?
Yes, it’s possible to buy a house with cash. Making a cash purchase can offer home buyers a competitive advantage by appealing to eager sellers. Purchasing a house with cash requires you to acquire the necessary cash and provide proof of funds. Some lenders and banks offer programs designed to help you fund a competitive cash offer.
10 Steps to Buy a House in Cash
Buying a house in cash might feel complicated, but the process can become much easier once you understand the basic steps. Review the useful steps below to learn about the importance of establishing a budget and creating the right team when you enter the housing market.
1. Establish a Budget
Budgeting allows you to plan for the future. Know your current financial situation to have a strong idea of your projected purchase price before you begin your property search. Your budget might indicate if you need to adjust your expectations or change your strategy before buying a house in cash.
2. Work with a Real Estate Agent
As defined by the U.S. Bureau of Labor Statistics, Real Estate Agents can assist you in buying, renting and selling properties. Find a Real Estate Agent that best understands your needs. A reputable agent can help you navigate the homebuying process and potentially save you money. Speak with family members who recently sold or purchased property to see if they recommend an agent.
3. Choose the Right Property
Selecting the right property includes weighing multiple factors ranging from location to price point. Ideally, the right property assists you in achieving your dream of homeownership while also staying within a designated budget.
4. Make an Offer
Making an attractive offer can get your foot into the door of your dream house. A cash offer is usually more attractive and conveys a sense of deal stability to sellers.
Providing a cash offer to a seller might be easier than you think. For example, some mortgage lenders and banks provide programs designed to help you become a cash buyer. The exact requirements differ between financial institutions. A cash offer can make it easier for you to save money while increasing your odds of getting your dream home.
5. Settle the Earnest Money Deposit
Earnest money is a type of deposit put down during a real estate transaction. It is provided to show that a buyer is serious about a deal. Earnest money differs from a down payment. If a buyer cannot complete the deal then the earnest money will usually go to the seller.
6. Conduct a Home Inspection
A home inspection is conducted by a home inspector who examines the quality and safety of the property. First-time homebuyers can benefit from a thorough home inspection. Home inspections are recommended because they reveal problems such as mold or improper plumbing.
7. Be Part of the Title Search
A title search looks at the history and records related to a property. To move forward with a real estate transaction, a property must have a clean title. In general, a title search indicates potential record errors or liens.
8. Availability of a Homeowner’s Insurance
Homeowner’s insurance is insurance intended to safeguard against unexpected repairs or replacements. It protects from financial loss by covering the cash value or replacing the lost or broken property. Depending on your insurance, payments can be made annually, quarterly or monthly. It’s possible to save money by paying annually.
9. Set a Final Walkthrough
A final walkthrough allows a homebuyer to have one last chance to examine the property. The walkthrough allows you to see if repairs were completed as requested. Remember to check the inside and outside of the house when proceeding with the final walkthrough.
10. Close the Deal
Closing the deal is the last part of a homebuying transaction and indicates that all parties involved find the terms agreeable. During the closing process, the outstanding fees are paid and the ownership of the property is transferred to the buyer.
Advantages of Buying a House in Cash
When thinking about buying a house in cash, review the multiple advantages potentially working in your favor. A cash buyer avoids having to pay a mortgage and mortgage-related interest rates while also receiving more favorable closing costs. The extent of the benefit depends on your exact deal.
No Mortgage
Buying a house in cash means that you will not need to take out a home equity loan or mortgage loan. Mortgages require monthly payments over the span of 15 to 30 years, depending on the specifics of your loan. Avoiding a mortgage can free up your future finances.
However, taking out a loan can be an excellent option if you do not want to fully fund a house using cash. Lenders have a vast selection of loan opportunities designed to work with different budgets and credit scores.
No Interest Payments
Purchasing a house in cash allows you to avoid paying interest. Interest payments made on the principal loan amount add up over time. Buying a house in cash can help you save money in the long run.
Favorable Closing Costs
When you pay in cash, you’re able to avoid larger closing fees associated with mortgage payments. For example, paying in cash lets you skip loan-related fees such as loan origination fees and application fees.
Expedited Closing on the Property
You will likely experience a faster closing on the property when you pay in cash. The absence of a loan can expedite the closing process because you won’t need to wait for a lender to approve a mortgage application. In certain situations, you can close on a property in less than 10 business days.
Full Ownership
Buying in cash offers an added level of security. You are able to fully own your home and access the equity as you see fit. Keep in mind that you will still need to make payments such as property taxes and homeowners insurance.
Limitations of Buying a House in Cash
While buying in cash can prove beneficial, it might not be the best option for you. Examine the potential limitations related to buying a house in cash such as having a substantial amount of your funds locked into one place, potentially missing mortgage deductions and facing additional charges down the road.
Illiquidity
Buying a house in cash has the potential to significantly impact your liquidity. Liquidity examines how easily you are able to exchange your assets for cash or cash equivalents. Real estate is not considered liquid. Committing a sizable amount of cash for home purchase will likely impact your overall liquidity. In general, it’s recommended to have a dedicated emergency fund that’s easily accessible to ensure you have cash readily available for unforeseen circumstances.
Missed Mortgage Deductions
You might miss a mortgage interest deduction. A home mortgage interest deduction allows individuals who itemize their taxes to receive a tax deduction on the interest paid on a mortgage loan.
Face Additional Fees
Paying in cash does not exempt you from all housing-related fees. For example, you will likely need to pay for repairs and renovations throughout the lifespan of your property. Additional fees will likely include property taxes.
Cash Kingdom: Funding Your Dream Home
Buying a house in cash can offer you a higher level of financial freedom. Cash buyers have peace of mind in fully owning their property. Before deciding to buy a house in cash, weigh the advantages and limitations to see what would work best for you. Create a team of professionals dedicated to helping you navigate the housing market and fund the house of your dreams. As the saying goes, cash is king.
Frequently Asked Questions
How long does it take to close on a house in cash?
It typically takes less time to close on a house when you pay in cash. Depending on the situation, you can close on a house in less than 10 business days.
Are there any tax implications for buying a house in cash?
Buying a house in cash means you will still need to pay property taxes. Speak to a tax professional to know what possible benefits and drawbacks apply to you.
What happens if you decide to sell the house later on?
If you decide to sell the house later on, consider waiting between two to five years. The amount of time you decide to hold before selling depends on your situation and the market. Holding a property for a few years before selling can increase its value and help prevent you from losing money.