Cash purchases for residential real estate aren’t exactly frequent, but they do happen. According to the National Association of Realtors® 2019 profile of home buyers and sellers, 86% of home buyers finance their purchase while only 14% pay cash.
When you’re strategically positioned financially for such a move, paying cash for a house may save you time, trouble, and money.
- Determine Your Home Buying Budget
- Skipping the Loan Process
- How Cash Can Help You Seal the Deal on Your Home Purchase
- Cold Hard Cash vs. Wire Transfers & Cashier’s checks
- How to Save Money When Paying for a House with Cash
- Working with a Professional Real Estate Agent
- Have Questions? Ask Lindsay!
Determine Your Home Buying Budget
The last thing you want to do when purchasing a house with cash is to deplete your financial resources completely.
It may be tempting to ditch the mortgage to save the monthly payment, but you’ll still want to have a nest egg for repairs, unforeseen expenses, and emergencies.
It’s a wise practice to set aside 3-6 months worth of expenses as an added safety net.
Keep in mind that while you’ll be saving on closing costs by eliminating lender fees and interest, you’ll still have closing costs to pay, so figure that expense into your buying budget, too.
And, of course, you’ll want to avoid being house-poor, so don’t pour all of your savings into your new real estate investment.
Skipping the Loan Process
One of the most significant advantages of paying cash for your property is skipping the loan process.
When you skip the loan process, you eliminate much of the drudgery of providing your credit score, debt-to-income ratio, proof of income, and other documentation proving that you’re able to repay the lender.
When you can one-two-skip-a-few past the home mortgage loan application, you’re also saving all the time it takes to go through the verification process. Skipping this step means that when you find the house you’re ready to buy, you don’t have to wait for a financial institution to qualify you for the purchase.
When a lender finances a home mortgage loan, they require that the house being purchased is appraised and inspected. As a cash buyer, you’re not subject to the lender’s rules.
You have the right to make a purchase “as is.” That, too, comes with serious risk. When you estimate your closing costs, you can figure in the fees for the appraisal, inspection, and possibly a survey.
How Cash Can Help You Seal the Deal on Your Home Purchase
When a seller lists their property, their goal is to sell quickly, and for the most money. But there are variables in that process.
First, a seller is more inclined to accept an offer from a cash buyer. By purchasing with cash, you assure the seller that you’re not going to back out of the deal because the bank declined your loan. There’s less risk to the seller.
Second, because you’re paying with cash and can likely close much more quickly than a buyer who finances, the seller may be willing to negotiate a lower price. There are ample instances where a seller might be motivated more by moving date than by dollar amount.
Cold Hard Cash vs. Wire Transfers & Cashier’s checks
Cash is king — until it isn’t. The word “cash” doesn’t necessarily mean paper money anymore. When someone is a cash buyer, they’re likely referring to money in the bank that can be transferred electronically, or secured with a cashier’s check.
It’s safe to say that people don’t likely have hundreds of thousands of dollars stuffed in their mattresses. But it has happened that someone literally has cash – paper money – with which to buy a house. There are several reasons this isn’t in your best interest.
On the most basic level, think about counting that money — more than once, and then sitting to bear witness while others count that money, also repeatedly. It’s not very practical to tote a suitcase full of crisp bills for a purchase that large.
Also, on a more elementary scale, there’s the risk of something actually happening to the cash between the time you find the house you make an offer on, and the time you close. From natural disasters and accidents to thievery, there are a lot of things that could quite literally destroy your cash and your chances of homeownership.
On a more significant note, you’ll need to explain multiple times, with prove, where you obtained the funds – including to the IRS. You could find that this process is more complicated than the home loan application! The safest way to proceed with your “cash” purchase is to put that money in the bank and prepare for a wire transfer or cashier’s checks.
The word checks there, in the plural, is on purpose. You’re not only paying the seller, but you’re paying other service providers and fees as part of closing costs. You may find yourself issuing several checks as opposed to paying one lump some through the lender.
And there’s one more reason not to use paper money to pay for your new house. Not to suggest that people are dishonest, but you’ll want to be able to provide proof, if necessary, that all of the providers received payment, other than a mere receipt.
How to Save Money When Paying for a House with Cash
Buying a home with cash is a bit of a different game than financing the purchase with a home mortgage loan.
You’ll be saving money on interest over the long run. But, because you want to save as much money as possible, you may be looking for properties listed for less than ideal reasons, including:
- Homes in foreclosure
- Houses in probate
- Listings that have expired or haven’t sold
- Seller bankruptcies
- Houses that are sold because the owners divorced
- Sellers who are relocating for work and need to sell quickly
- Homes that need repairs, updates, and upgrades
At this point, you need to ask yourself how much work you’re willing to put into the property. Do you want a fixer-upper? Are you planning to live on the property or use it as a rental?
Although you may be willing to compromise to get a good deal on the house you buy, you should still have your wish-list and deal-breakers in mind while you’re on the house-hunt.
Working with a Professional Real Estate Agent
You might think you can save a few bucks by eliminating the middle man in your transaction, but that’s a risky move. You’ll need a real estate agent who connects with your situation, understands your needs, and respects your budget.
Find a qualified real estate agent who is experienced in dealing with cash purchases. Your agent will help you find deals and save money by showing properties with more opportunities because of their unique conditions.
Being able to pay cash for a house is a proud moment. A lot goes into the planning, preparing, and of course, the incredible saving you have to do to be ready to make a move.
Before you start house-hunting, make sure you’ve got a firm grip on your budget with respect for your closing costs, your next 3-6 months of expenses, a nest egg for incidentals, and an emergency fund. Don’t over-extend yourself financially.
Make sure your cash money is actually secured in a financial institution and ready for an electronic transfer or cashier’s checks.
Trust your professional real estate agent to show you houses that may have reduced prices because of the sellers’ circumstances, and to guide you through the closing processes.
Have Questions? Ask Lindsay!
Give Lindsay Rice a call today at 703-223-8676 to set up a time to discuss your current and future real estate goals in regard to buying or selling a home. We look forward to working with you to make your goals a reality.