While about 60% of homeowners have a mortgage, this isn’t the only way to buy a house! Many people don’t realize that buying a home in cash is an option, but there are actually several benefits.
Want to learn more about how to buy a home in cash and why you would want to do so in the first place? You’re in the right place. Keep reading for everything you need to know.
Benefits of Buying a Home in Cash
First, why would you want to buy a home with a cash payment anyway? One of the biggest reasons is that this is the preferred method among home sellers.
If you find a home you fall in love with, making a cash offer could mean the difference between getting the contract and losing the home to another buyer.
Sometimes, a seller will even accept a lower cash offer so they don’t have to deal with the hassles that come along with working with lenders. For example, lenders require an appraisal for most properties and will refuse the underwrite the loan if the home’s value isn’t high enough.
A seller who accepts an offer contingent on lender financing could find themselves holding the bag, and many aren’t excited about taking this chance.
Cash sales also close much faster. While traditional mortgages often require a 30 to 45 day escrow period, a cash sale can close in just a few days.
This is a huge advantage for sellers who need cash fast for personal reasons and for families who are trying to sell inherited homes. As a cash buyer, you might also be more likely to get your hands on a home that’s selling for a great price due to the need to sell fast.
How to Buy a House in Cash
After considering these great benefits, the next question is always how do you buy a home in cash? The good news is, it’s easier than you might think. Start with these tips.
1. Make Sure You Have Enough Cash
This first tip may seem painfully obvious, bear with us for a minute. Having enough cash to meet the initial cost of the home isn’t enough. If you completely empty your bank account to make the purchase, you’ll quickly find that you’re in trouble.
In addition to whatever you pay for the home, you want to have an emergency fund large enough to pay at least three to six months of your mandatory expenses in case you were unexpectedly out of work. Note that this money should be in a liquid bank account – not in your retirement account!
Taking withdrawals from retirement accounts can result in serious tax penalties and potential stock market losses.
Also remember that you’ll need money for taxes, insurance, and your homeowner’s association payment (if applicable). You also need money to cover the cost of your move, to buy any furnishings you’ll need, and to cover expenses like lawn and pool care.
Don’t forget about minor (or sometimes major!) repairs that you might come across after you move in.
2. Find the Home, Make an Offer, and Sign the Contract
Once you’ve confirmed you have enough money, the fun part begins! Now you get to search for your dream home and make an offer. In many cases, it’s well worth the money to pay a real estate agent to help you out.
If the seller accepts your offer, you’ll sign the contract and you’re on your way to making your purchase. The seller may want you to provide proof that you actually have the money (which you can get from your bank), and will usually request that you put up a certain amount of “earnest money.” This is usually equal to 1 to 2 percent of the total sales price.
3. Work with the Title and Escrow Companies
Depending on the state where you live, either you or the seller will hire title and escrow companies. They’ll handle things like making sure the title is clear and ensuring the property changes hands without a hitch.
4. Don’t Forgo the Inspection
Although you won’t have a lender requiring an inspection, you still don’t want to skip this step! You’ll have to pay out of your pocket to have a professional come in and check out the home, but this is the best way to ensure you won’t run into any unpleasant surprises after you own the home.
5. Arrange for the Transfer of Funds
When you buy a house for cash, you won’t show up to the closing with a suitcase full of $100 bills. Instead, you’ll arrange for the bank to complete a wire transfer to the title company on your closing date.
6. Close the Deal
The last thing you’ll need to do is go to the title company and sign all of the closing paperwork. When everything is done, you’ll receive the keys and you’ll be the proud owner of a new home (without the mortgage!).
Need to Sell Your Home Fast? We Can Help
Now that you understand the benefits of buying a home in cash and how easy it is to do, you might be ready to run right out and start shopping!
Need to get your current home off your hands? We can help. Learn more about how you can get a cash offer for your home today!