Buying a house “with cash” can benefit both the buyer and the seller with a faster closing process than with a mortgage loan. Paying in cash also means no interest and can mean lower closing costs.
Paying all cash for a home can make sense for some people and in some markets, but be sure that you also consider the potential downsides. The downsides include tying up too much investment capital in one asset class, losing the leverage provided by a mortgage, and sacrificing liquidity.
Experts believe that even if you have the sums to purchase the property in one go, it is better to take a home loan. Instead of spending a lump sum amount on the property, it is better to go for a large amount down-payment and pay off the remaining amount in higher amount, monthly EMIs, since you can afford it.
A cash offer is an all-cash bid, meaning a homebuyer wants to purchase the property without a mortgage loan or other financing. These offers are often more attractive to sellers, as they mean no buyer financing fall-through risk and, usually, a faster closing time.
Paying cash for a home eliminates the need to pay interest on the loan and any closing costs. "There are no mortgage origination fees, appraisal fees, or other fees charged by lenders to assess buyers," says Robert Semrad, JD, senior partner and founder of DebtStoppers Bankruptcy Law Firm, headquartered in Chicago.
A cash property sale can potentially complete in a matter of weeks. Skipping the mortgage application step may save you the four to six weeks it typically takes for an application to be approved. That said, other factors can impact the buying process and draw it out.
As long as the seller doesn't need the buyer's funds to purchase their next property, the cash purchase should proceed quickly, potentially within a few weeks. 'Cash sales do typically go through quicker – within around 30 days in most cases, provided there is no onward chain on the property,' says Dale.
Advantages of buying a house with cash
As a seller it is important to weigh up whether a drop in price would benefit you, as cash buying is a quicker route to sale; no mortgage needs to be agreed, there is no chain and the sale is less likely to encounter any issues.
Yes, all-cash offers can fall through. This can happen, for example, if you have a professional home inspection done and defects are found, or if there are problems with the property's title that need to be resolved. A seller may also reject a cash offer if they don't trust the source of the funds.
A cash buyer may offer significantly less than the asking price as they are aware of the benefits they offer a seller, such as a quicker sale.
This isn't always true, but nonetheless, this myth tends to scare off buyers who need financing from even trying to compete. However, I can tell you from personal experience: It is entirely possible to beat an all-cash offer, even if you have a mortgage and other strikes against you.
Closing costs are paid according to the terms of the purchase contract made between the buyer and seller. Usually the buyer pays for most of the closing costs, but there are instances when the seller may have to pay some fees at closing too.
Cash allows you to keep closer control of your spending, for example by preventing you from overspending. It's fast. Banknotes and coins settle a payment instantly. It's secure.
Why Do Sellers Prefer Cash Buyers? One reason sellers prefer cash buyers is because deals can often close faster when you don't need to get a lender involved. But the primary reason sellers prefer cash buyers is because there is a lower probability of the deal being delayed or falling apart when buyers use all cash.
Estate agents love to sell houses – well that's the easy bit. The skill is actually in getting the right buyer in the first place – not just the first buyer. Many estate agents will say “we have a cash buyer for you and they have nothing to sell, “no chain”. 'Great', you think – perfect even.
Can a buyer back out of an accepted offer? The short answer: yes. When you sign a purchase agreement for real estate, you're legally bound to the contract terms, and you'll give the seller an upfront deposit called earnest money.
Share: Yes. A seller can back out of an accepted offer or before closing, as long as there are no specific clauses that state otherwise. That being said, whether or not a seller can back out of a contingent offer depends on the contract that was written and what is mentioned in it.
Appraisal is lower than the offer: If the home appraises for less than the agreed-upon sale price, the lender won't approve the loan. In this situation, buyers and sellers need to come to a mutually beneficial solution that will hold the deal together — more on that later.
When the appraised value comes in below the contract price, it limits the amount a lender will finance because they base the loan on the appraisal. Before finalizing a new mortgage or refinancing, a bank will order a home appraisal to determine the value of the property.
Can the seller back out if your appraisal is high? Realistically, the answer is “no.” For one, they accepted your offer and would be breaching the sales contract if they wanted to put the house back on the market to capture a higher price.
It is a legally binding document after all. The seller, similarly, can be sued, or forced to go ahead with the sale. However, the offer to purchase may include clauses that allow for it to be cancelled under certain conditions.