7 Tips for Buying a Home With Cash

by on April 15, 2012The Realestate.com Team

tips fpr home buying with cashCash is king. If you are flush with cash and ready to make a deal, sometimes it’s easier to get acceptance on a lower offer in a competitive situation. Because cash buyers get to skip over the treacherous loan qualification process, cash deals are considered a “sure thing” and therefore more attractive to sellers.

Here are five tips for home buying with cash.

1. Leverage your position to the max. Because cash buyers get to skip over the loan qualification process, cash deals are more attractive to sellers in many cases. Take advantage of this position and ask for terms such as a closing timeline, home repairs, cash allowances, or a homeowner’s warranty. You can even ask sellers to cover closing costs as a cash deal contingency.

2. Work with a real estate broker or lawyer experienced in closing cash deals. This tip could save you money and prevent legal hassles down the line. You want someone on your side with experience and perspective on this kind of deal within your market. Even cash deals can hit snags and you want to ensure that you have all of your legal bases covered and that you have clear title on the property when the transaction is complete.

3. Make sure that buying a home with cash is right for you financially. Before you plow all of your cash into purchasing a residence, you want to carefully consider all of your investment options. By choosing a different financial instrument with a rate of return higher than the cost of mortgage interest, you may be able to make more on your money than a mortgage costs in interest. Before you tie your cash up in a home, be sure to have plenty of additional money stashed for emergencies and other needs. Also, do your due diligence and look for investments that could make you more than a mortgage would cost you (if you’re eligible for a mortgage).

4. Give yourself an out with a “right to inspect.” Because you’ll have generally less information about the property prior to close, you definitely want to provide yourself with an easy out should the home end up being a lemon. While a home inspection may add a few days to the closing cycle, it is worth it if you’re buying a home with cash. If you’re feeling especially gutsy and the property has been on the market for a while or the seller seems desperate to close, ask him or her to pay for the inspection. Take advantage of your position! Remember, cash is king.

5. Estimate sale AND post-sale costs. Buying a home with cash can save a pretty penny on the cost of a transaction – and on mortgage interest over the lifetime of a loan. Cash buyers are able to avoid loan origination fees, the cost of a property appraisal, some closing costs and other lender imposed fees. Although you save a lot of money upfront, the transaction can end up costing you in the end. You’ll make a purchase decision with less information – which could mean a lower valuation or higher taxes than anticipated down the line. It also might end up costing you in terms of unexpected home improvement costs or survey and title issues. You also may be getting less house for your money by forgoing a mortgage.

6. Understand the benefits of holding a mortgage that you may be sacrificing. In addition to the tax benefits that you’ll be walking away from, mortgages for primary and secondary residences can provide a high-quality installment loan for your credit report. This type of “good debt” can make it easier to borrow money or get favorable rates on other financial products such as credit cards.

7. Ask your agent to check the “appraisal contingency” box on the purchase agreement and have the home appraised. Although the appraisal may cost a few hundred dollars, an appraisal is the only way to ensure that you are purchasing the home at its true current market value.

{ 35 comments… read them below or add one }

T December 3, 2014 at 5:14 am

Hi,
I’m planning on buying a house for cash. My question can you give an estimate of how much should I have set aside after paying for the house? Also, what is the least reasonable amount to offer if the house is $79,900?

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Aesedai November 8, 2014 at 4:51 pm

In the next 2.5 years or so I will be saving what should be enough to pay for a basic rental property (simple condo or possible small townhouse)… do you think I should be investing that money along the way in, say, REIT funds? My thinking is that if Real Estate goes crazy again while I’m saving the REIT gains will mitigate the lost opportunity that came from waiting to buy the house with cash… if the REIT’s perform poorly in that time than that should mean that Real Estate should still be close to where it is now so I wont need the gains. Any thoughts on this? Am I crazy?

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Beth September 4, 2014 at 7:21 pm

My husband and I have found a REO property. It has been vacant for a couple of years and has some pretty significant problems, but it is the size and location we are seeking for retirement. After hiring a licensed inspector, we estimated repairs at $93,000. Similar properties in the neighborhood are going for around $290′s with some updates.

We started negotiationa at $190,000. The bank is asking $229,000. After four offers, we’ve come up to an all cash, no contingency offer of $202,000. They’ve dropped to $225,000 but seem unwilling to budge. They’ve accepted two other’s offers from people who walked away. We are at our wits end. Any suggestions moving forward would be appreciated. We can see the potential, but don’t want to get in over our heads.

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Jim September 30, 2014 at 8:06 am

Walk away. You have left no margin of safety for yourself. At your offering price point, you should just wait to purchase a “like” home in the neighborhood for 290k and save yourself the agony of a renovation.

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lynn August 30, 2014 at 10:09 pm

We r paying cash for a house. How does the title become ours if we don’t have a realtor do up paper work. This is the first time buying a house.HELP!!

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Andrey August 8, 2014 at 6:10 pm

Hello,I want a buy soon home for cash,anybody can help me with steps and how much money cost in total with everything.

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NB July 3, 2014 at 5:25 pm

We are buying a small home for cash. The seller is not using a Realtor services. We have hired a realtor and she is taking care of everything as we do not have much knowledge about the process. We are paying for our Closing cost not the seller. What other things we should be aware of. I hope my realtor is working for me. Thank you.

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Dstutz June 22, 2014 at 11:06 am

Wrong. The seller pays the realtor commissions out of the proceeds the buyer pays the title search, inspection, etc. so the biggest chunk of out of pocket is paid by the seller the buyer pays fees that have to do with loan and to protect their interest in the property.

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Mo June 19, 2014 at 3:40 am

I am buying property with cash, i am not sure if the property is legitmate. I have signed the purchase contract. i am not sure when to transfere money.

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Becka April 7, 2014 at 9:42 am

What mutual funds don you have with a 10% return?

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matt February 22, 2014 at 9:36 pm

I am purchasing a home for $18,000.00. It’s small, but is well built & big enough for my family. The seller has out of state obligations that have required him to lower the selling price significantly so he can move. My questions are these: In Indiana how much will I have to pay in closing costs & do I have to pay sales tax, if so, how much? Thanks for any help you can give.

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john January 23, 2014 at 12:29 am

i paid cash, the inspection went real bad though, can i back out of the deal..?

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Julie January 22, 2014 at 2:54 pm

I was a victim of fraud/embezzlement during a cash purchase of my home a few years ago. The lawyer had been stealing money from his escrow and operating accounts to fund is oxycoton habit. So the check I was issued at closing bounced. I spent 2 years and about 40K trying to get all the money that was owed to me. I’ve learned my lesson being on the selling end of this type of transaction and what documents I should ask for and all the horrible things that can go wrong.
My husband and I are purchasing a home (cash) in the next few weeks. We are working with a realtor and will be closing with a title company. We’ve done the inspection and appraisal. I want protection from errors against the people who are handling the funds and issuing the title. And I have NO idea how to properly protect myself in this situation. Has anyone dealt with a Title company before? What type of insurance are they required to carry, is it anything like Errors and Omission insurance that lawyers are required to have?

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Brooke January 21, 2014 at 7:01 am

Paying cash for a home and wondering what types of fees will be paying at the end (thinking not much)?

Closing within the 15 days once contract is accepted. Therefore, when do I start my home inspection?

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john March 5, 2014 at 10:28 pm

i would start the home inspection before close,

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Brian August 18, 2013 at 5:46 pm

yes its good advice but obviously given by a realtor? I wanting to buy a house cash but don’t want to use a realtor, due to the fact that we know the house we want and don’t want extra cost, the 3% that the realtor will get from the seller is better in my pocket in leverage trying to reduce purchase price. So if I did not want to use realtor what do you suggest?

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Laquana July 5, 2013 at 8:50 pm

I am going to purchase a home for cash in a few weeks. I’m glad I found this website. I was thinking that I should get an agent or lawyer to help me through the process. Reading those 7tips really answered a lot of questions and gives me more confidence.

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Rewlrw June 23, 2013 at 4:16 am

Just paid cash for a 330,000 house, closing fees were 650.00 thats it and that was for the attorney. I said no to the 700.00 title ins that is what i expected the attoney to verify. The tax benefit for a morgage is a fantasy you still pay 3 times the value of the house over 30 yrs.

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Kevin August 25, 2013 at 8:44 pm

Yes, what you are saying is true. But, if you can get a mortgage for below 5% interest, then a strong case can be made to do so. Not only can you write off the interest, but you could use unspent savings (you didn’t buy the house with) to invest in good mutual funds (earning 10% percent), or investment rental properties (which can earn 40% per year over time). By doing so with the latter, for example, one can make 8-plus times their investment over 30 years. So, yes, while you end up paying 2 and a half times for the house (at today’s low interest rates), you could earn 8 times your money. I’ll take 8 dollars for every 2.5 dollars I spend any day. Smart investors know this. The problem is when mortgage interest rates are over 5.5%. The numbers aren’t as compelling then, so paying cash can at those times be a viable option.

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Charlie October 20, 2013 at 10:00 pm

This is terrible advice. If it was that easy to invest in a “good” mutual fund (10%) than I would have no problem agreeing. The market today isn’t that reliable. If you pay with cash, the other option being 5% mortgage, your investment is the 5% interest you would have been paying over thirty years. That is safer and guaranteed.

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T. Taylor November 2, 2013 at 12:51 am

you didn’t need a lawyer as much as you needed title insurance. … your lawyer should be sued for not advising and insisting you get it.

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oliver felst May 22, 2013 at 3:48 pm

Thank’s!

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Michael Minson May 6, 2013 at 12:07 pm

Paying cash is a great way to get an edge over the other buyers in the market, particularly in San Francisco where inventory is ridiculously low. However, sellers can get the tax benefits of a mortgage as well as use that cash for other investments by refinancing and getting their cash back once the transaction is closed.

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Jimmy October 1, 2013 at 10:12 am

@MichaelMinson
If you close without a mortgage and then do a refi: a) the refi will be considered a cash out not a rate and term refi and b) you will only be able to deduct interest on $100,000 of the loan proceeds not $1,000,000. The IRS code allows the mortgage interest deduction for $1 million of home acquisition debt plus $100,000 of home equity debt. If you buy for cash and then refi you blew the ability to deduct the full interest.

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bruce March 5, 2013 at 4:42 am

what fees are there if u do pay cash for a home …i.e stamp duty … sales tax ect ect

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Paul November 11, 2012 at 2:24 pm

We are looking and can pay cash but when should we tell our realtor that we can pay cash. My wife and I are arguing about this. She says wait, I say the realtor should know sooner because we might miss out on some deals by withholding that info.

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e February 13, 2013 at 7:15 pm

If you cannot trust your realtor with that information than you need to find a realtor you trust. Your financial information is protected by the buyer brokerage agreement.

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monica altmann October 14, 2012 at 7:09 am

Interesting option about the Appraisal – the cash buyers I’ve dealt with never did an appraisal, but if there’s any doubt of the value, this is a great added protection

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Marianasliving June 7, 2012 at 9:31 am

This article is great. Sellers would grab the cash quickly! but we have to consider the tips here. It’s very useful. I learned a lot….. I learned from the comments too.

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Property Tax Services April 16, 2012 at 4:25 pm

If you own a home, then you can also expect for it to be tax deductible. All home related expenses and refinancing that you decide to do for your home will be a way for you to take off money at the end of the year. You can also receive tax deductions from the mortgage interest that you pay. If you just own a home or if you are considering home equity, you can easily find a way to break off some of what you would owe.

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Jarl Kubat April 16, 2012 at 3:22 pm

Great advise! – Cash is King but, as the article explains work with a real estate agent that knows the in and outs and protects your (the buyers) interests.

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Shelby January 28, 2014 at 5:15 pm

“Work with a real estate agent ”

Why !? So they can get a chunk of your cash ? No way. Find a bargain basement attorney. Cash transactions are simple. Don’t let people scare you out of your money for this common, everyday standard process. An appraiser is only going to tell you what you already know if you’ve done any research yourself. And you have done the research if you’ve already found your target house. Inspection – you’ll get a list of stuff that needs fixed. Helpful but you’ll lose money in the end. Do it if you suspect structural or major electrical issues. Title insurance – Yes, but shop around. There is no reason this should be expensive for a standard transaction. All these various people want your money and dire warnings are their way of selling you their services. Do your own homework. Don’t let them convince you that this is rocket science. It is not.

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Meee January 30, 2014 at 6:09 pm

RE agents are paid for by the seller not the buyer

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Wrong Mr Mee May 20, 2014 at 7:27 am

Buyer is the one who delivers the cash and the Buyer is the one who pays for everyone.

Many times sellers think of a price and add 5% or 6% or whatever the commission to come to the desired price.

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diiane October 24, 2014 at 5:59 pm

my husband and I found a mobile homes for sale by the owner himself no realitor involved. but there is a tenant living in it. he wants to meet and sign a contract and give him a cashiers check for a deposit . my worry is what happens in 30 days if that tenant hasn’t moved from home.

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