Although it’s uncommon, buyers do sometimes prefer to buy a house with cash. In that case, they make what’s called a cash offer. Buying a house in cash doesn't necessarily mean usually physical cash, and it can be a smart move for buyers with significant liquid capital. Otherwise it may not not be in your best interest, even if it does help you close on the home more quickly.
A cash offer doesn’t mean literally buying a house with paper money. Rather, a cash buyer is someone who uses their own money to cover the full purchase price of a home, rather than financing the purchase with a home loan.
A cash buyer’s funds could come from savings, investments, the sale of another property, or other sources. It is typically conferred with a cashiers check or wire transfer (not a briefcase full of Benjamins).
Yes, you can buy a house with cash but it’s not common. As much as 87% of homebuyers in 2022 financed their home purchase, according to the National Association of Realtors.
A home purchase is often one of the biggest investments that Americans make in their lifetimes. Few people have the kind of liquid assets required to buy a house with cash, and even if they do, they may still prefer to reap the benefits of taking out a mortgage (more on that later).
“Cash transactions” are typically conducted through electronic bank-to-bank transfers. It raises fewer red flags for authorities as compared to how someone acquired so much physical cash. Writing a personal check is fine, just so long as you have enough money to pay for the home as well as any additional closing costs. If you’d prefer some more insurance, consider using a cashier’s check instead.
Yes, technically, you can bring a briefcase full of cash to the closing table and use it to buy a home. There are no laws prohibiting a physical cash real estate transaction, just a few hurdles.
First, you’d need a seller who would like to receive physical cash. They’d have to count the cash at closing and then leave the closing table with a ton of money. It may sound cool but in practice, it’s not exactly wise to walk around town with a small fortune in cash. Moreover, some sellers will not be able to show up to their bank with $450,000 in cash without raising eyebrows.
Whenever someone deposits an amount exceeding $10,000 into an account, the bank must alert the IRS. Even if the seller doesn’t deposit the money, the law also requires banks to report any cash transaction of more than $10,000. unless you frequently deposit hundreds of thousands of dollars to your account at a time, receiving a deposit that equals the value of a home will draw the attention of the IRS and may result in the funds being frozen while the IRS looks into the transaction. It will all be fine, since there’s nothing illegal about paying for a house in cash, but it may be an inconvenience for sellers.
Plus, you and the seller would have to be comfortable carrying the weight of all that cash money. U.S. banknotes weigh approximately one gram, according to the Bureau of Engraving and Printing. That means the cash needed to buy a median priced home of $467,700 would weigh just over 10 pounds in $100 bills.
All of that said, buying a house with cash can be a smart financial and personal move for a number of reasons. Here are some of the top reasons people prefer to buy a house with cash:
When you take out a mortgage to buy a home, you’re mostly using the lender’s money. That means they have a lot of say in what the home purchasing process looks like. They will likely order you to get an inspection and appraisal on the home. Those are smart protections for both the lender and you but if you’re trying to move fast, they can be handcuffs.
When you buy in cash, you’ll still go through the standard negotiation, signing, and closing process, but there will be much less paperwork at closing and there is no lender dictating the steps you need to take.
That said, it’s good to have a real estate agent to guide you through the process to ensure you don’t miss any major details.
Financing falls through sometimes, which can be a pain for sellers who have to go back to the starting gate with another buyer. In a competitive market, cash buyers may have a leg up on buyers financing their purchase. When you come with cash, you and the seller won’t have to worry about a lender dropping their loan approval at the last minute.
Plus, because cash transactions tend to happen faster than working with a bank, sellers may be more open to negotiating with cash buyers.
The biggest perk of paying with cash? You don’t have a monthly mortgage payment. But beyond that, you also won’t have to pay all the fees and costs that accompany a mortgage.
Say you took a 30-year loan for $300,000 to buy a home with a 3.5% interest rate. Across 30 years, you’ll spend an additional $184,968 on interest. When you pay in cash, you won’t have to pay any of that interest. Likewise, you won’t pay private mortgage insurance or other fees instituted by the lender to protect their investment.
It’s especially smart to use cash to buy a second home or investment property so you can rent out the property without a monthly mortgage payment. That increases your profit margin considerably.
Use our Mortgage Calculator to find out how interest can affect your monthly mortgage payment.
When you finance a home purchase, your lender charges you for services that add to the total amount you pay at closing. Things like lender fees, application fees, loan origination fees, and discount points all combine to add potentially tens of thousands of dollars to your closing costs. When you pay with cash, you won’t have to deal with any of these lender-related closing costs.
Lower closing costs is a great benefit, and you’ll also enjoy a much faster and easier closing process when paying with cash. The closing process when using a mortgage typically takes between 30 and 45 days. When you buy with cash, it could take as little as one week.
When you pay with cash, you don’t have to wait for the lender to approve, underwrite, and process your loan, and you won’t be responsible for keeping track of all the documentation you would otherwise have to send to your lender.
Finally, buying a home with cash means the home is yours, not just 10% yours. Monthly mortgage payments build equity in the home over time but if you ever get into a tight financial spot, you may risk losing a house. Owning your home outright gives you the peace of mind that you won’t lose your home to foreclosure so long as you make payments on your property taxes.
Buying a house with cash comes with a cost, though. For one, carrying so much physical cash is dangerous and counting it all at the closing table takes a long time, with a large margin of error. Large cash withdrawals or deposits — both physical and electronic — often signal potentially nefarious activities to the government. That means you or your accountant will have to do some paperwork to report the transaction and share some information with the government. Those aren’t the the only pitfalls, though:
If you want to make changes or even just keep up with maintenance, you’ll need cash. If you spent almost all of your money on the house, that’s an issue. Homes are fairly illiquid assets, and spending all your cash on your home purchase can make it difficult to find cash to pay for other things in your life.
If you have enough cash to purchase a home without a mortgage, take the time to think if it’s really the best use of your money. It may make sense to still buy the home with a mortgage but make a large down payment to keep your monthly payment low.
Paying your mortgage every month is a pain, but it comes with a benefit. Homeowners with a mortgage can deduct interest paid on the first $750,000 of their mortgage, reducing their taxable income. Cash buyers do not get this benefit.
Just because you don’t have a monthly mortgage payment doesn’t mean you won’t pay anything on your house. You’ll still have property taxes, homeowners insurance, utility bills and, if applicable, homeowners association fees. Plus, home maintenance costs add up fast.
Again, if you have just enough liquid cash to buy a house, don’t make the mistake of thinking you won’t have to pay any more on the house in the future.
→ Here are the hidden costs of buying a home
.If you do have the money to responsibly buy a house outright, it can be a great idea. But it isn’t always advisable, even if it’s possible. Make sure you don’t overextend your finances and conduct the process with your checkbook or electronic bank account.
Delayed financing is also an option for those who want to reap the benefits of buying a house with cash while mitigating some of the drawbacks. This financing agreement allows cash buyers to obtain a mortgage after they’ve purchased their property in cash through a cash-out refinance. Buyers who use this method will have a monthly mortgage payment, but not all of their money will be tied up in their home.
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