Buying a cash house in the United States is becoming more and more common, especially now that real estate market prices are growing at a good pace. However, the median price of homes sold is $453,700. And while most people buy homes with some sort of financing, it might be smart to buy a home with cash in the United States.
Next, we are going to see if you can buy a cash house in the United States, what are the advantages and disadvantages of using this acquisition strategy and how to buy a cash house in the United States.
- Can you buy a cash house in the United States?
- Advantages of buying a cash house in the United States
- Disadvantages of buying a cash house in the United States
- How to buy a cash house in the United States?
- Gather the cash
- Look for proof of funds in the bank
- Find your house
- Make an offer
- Choose a settlement agent
- Secure a cashier’s or cashier’s check for collateral money
- Carry out an inspection
- Get involved in title research
- Apply for home insurance
- Consider an appraisal
- Ask for a cashier’s or manager’s check for the amount of the house
- Find out what other funds you might need
- Make a final tour
- Go to the closing of the house
- Move into your new home
Can you buy a cash house in the United States?
When we talk about buying a house with cash, we do not literally mean buying it with cash. In fact, it would be quite suspicious. A cash home buyer is someone who uses their own funds to cover the price of the home, instead of taking out a loan. These funds can come from savings, investments, or the sale of another property, for example.
Why buy a house without a loan? By buying a cash house, both the buyer and the seller benefit, since the process is much faster. In addition, the buyer will not have to pay interest and closing costs are cheaper.
Now, we are going to see the advantages and disadvantages of buying a house in the United States with cash so that you can draw your own conclusions and see if it really suits you.
|Advantages and disadvantages of buying a cash house in the United States|
|✔️ It is a more attractive deal for sellers||❌ Mortgage tax deductions are lost|
|✔️ No mortgage, interest or fees paid||❌ Money is tied to the house|
|✔️ Lower closing costs||❌ Still apply some additional costs|
|✔️ Faster and easier closing|
|✔️ The house is yours|
Advantages of buying a cash house in the United States
Although there are many advantages of buying a cash house in the United States, we are going to remember some of the most important below.
It’s a more attractive deal for sellers
If you’re in a competitive market, buying a house cash can give you an advantage over other buyers, who may be thinking of financing their purchase. Sellers typically prefer to work with cash buyers if possible, as they don’t have to worry if the buyer’s financing falls through at the last minute, as mortgages can if the buyer isn’t approved.
Also, because cash transactions are faster, sellers who are willing to close quickly may be more willing to deal with a person who buys with cash than with a person who will take out a mortgage.
No mortgage, interest or fees paid
One of the biggest advantages of paying for a house in cash in the United States is that you do not have to make monthly payments. This represents savings on interest and fees added to the mortgage, such as mortgage insurance or life insurance.
If we take a look at the total price in the long run, we can see that you would save a lot of money. For example, if you take out a 30-year loan for $300,000, your interest rate would be 3.5% and the total amount would be $184,968 over time. If you pay in cash, that money would stay in your pocket.
Avoiding monthly mortgage payments can be especially beneficial if you manage to use the money to purchase a second home or investment property. This means that you do not have to worry about reaching the minimum amount each month and you will have a higher profit margin on your rent.
Cheaper closing costs
When you get a mortgage, your lender will charge you for certain services that will be added to the closing. This includes a loan surcharge, application fees, origination fees, or discount points. You will also have other costs related to the loan or the purchase of the house that the lender requires, such as title insurance.
When you pay cash, you don’t have to deal with loan-related closing costs. In other words, you’ll save even more money.
Faster and easier closing
If we count how long the closing process takes – from start to finish – it would represent about a month. On the contrary, when you buy with cash, it is possible to close the purchase-sale transaction in one or two weeks. This is because you don’t have to wait for the lender to approve the loan, underwrite and provide other paperwork, which reduces waiting times.
As well as being faster, the process also becomes much simpler, since you will not be responsible for keeping track of all the documentation that lenders need. In fact, it is likely that your broker will take care of all the paperwork without any major inconvenience.
The house is yours
The monthly mortgage payment represents a large expense for homeowners, and if you experience financial difficulties and cannot pay, you could put your home at risk. When you buy a house cash in the United States, you don’t have to worry about losing your house and selling it in foreclosure (as long as you make all other payments tied to the house, like property taxes).
The peace of mind of knowing that you will have a roof over your head forever is one of the best and most important benefits of buying your home cash. And if at any time you need access to money from your home, you can take out a home equity loan.
Disadvantages of buying a cash house in the United States
And while buying a cash house in the United States can have many advantages, there are also some disadvantages to using this payment strategy. Next, we will see them in detail.
Mortgage tax deductions are lost
If you’re one of those people who take individual deductions, you could miss out on the mortgage interest deduction, which allows you to deduct the interest you paid on the first $750,000 of your mortgage, reducing your taxable income. Not having a mortgage, this option would not be available.
The money is tied to the house
When you buy a house in the United States with cash, you are leaving a large portion of your money in an illiquid asset, which means that you would not be able to dispose of that money easily or quickly. For example, if you’re in financial trouble and need money, it’s easier to take money from your savings account than it is to sell the house, show it to potential buyers, negotiate the contract, close the deal, and collect your share of the sale.
If you have enough cash to buy a home without a mortgage, you should consider what your goals are and whether that money would be more useful elsewhere. For example, you could receive better returns by investing in the US stock market or boosting your retirement account. Another idea that would make more sense is to use the mortgage to buy the property and then use some of that cash to upgrade or renovate your new home.
Although owning your home can provide a lot of peace of mind, it shouldn’t cost you your financial security. If you have to use all your savings to buy it, you could end up in a difficult position where you don’t have an emergency fund and money to repair your new home.
Still some additional costs apply
The fact that you do not have to pay a mortgage does not mean that there are no other payments related to the property. There could still be property taxes, homeowners insurance, utility bills, and the Homeowners Association. For that reason, you have to budget a certain amount of money each year for regular home repairs and maintenance.
How to buy a cash house in the United States?
Now that you know the advantages and disadvantages of buying a cash house in the United States, it is time to show you the process step by step. Keep in mind that some things may vary depending on the specific state and the particular case, but in general terms, all sales must follow the same structure.
1. Gather the cash
The first step is to ensure that all cash is in the same bank account. Although it may not seem like it, many people tend to keep money in different accounts, such as company shares, money market accounts, savings accounts, among others. For this reason, it is important that all the money is in the same place.
You may want to talk to a tax professional or financial advisor before you take out all your money so you can understand the big picture and all the tax implications of settling certain types of accounts.
Once you know where all your money is coming from, it will be easier to take the next step: proving where the funds are coming from.
2. Look for proof of funds in the bank
If you made a cash offer and want to be more competitive, it is good to have a letter from the bank to prove that you have the money available. This letter is safer than providing bank statements, as the latter contain sensitive information.
3. Find your house
This is the most fun moment: Search for the house you want to buy! A good real estate agent will not only help you narrow down your options, but will also help you determine whether or not the seller’s asking price is right. Just because you have a certain amount of cash to spend doesn’t mean you should use it all right away.
As you search, there are a few important things to keep in mind. First of all, think about what your house could be like in five years. Although the house you are interested in might be a good idea right now, do you think it will still be in five years? Remember that houses are also a long-term investment.
Also try to pay attention to details that are easy and inexpensive to change, like the color of the paint on the walls or the landscaping of the front yard. However, don’t dwell too much on the little things you don’t love about the house. Instead, focus on the home’s systems, like the roof, the windows, the air conditioning. He also turns on the appliances and checks that they work.
Lastly, you’ve probably heard the best advice in real estate: “location, location, location”. Once you buy a house, you can change almost everything except where it is located. If you love a house but don’t like its location, think hard before you commit to paying for it.
4. Make an offer
Once you’ve found the home you want, it’s time to bid. If you make the offer to buy a house cash, you will be much more competitive in a seller’s market. However, it is recommended that you include a contingency contract to protect yourself during the process. This means that you are willing to buy the house, but there are still some details that need to be verified, such as an inspection and an appraisal.
When you include an “inspection contingency” and an “appraisal contingency” with your offer, you are telling the seller that you would like to buy the house as long as the structure and price are in order.
5. Choose a settlement agent
People who hire a lender do not need to hire this agent. However, it is necessary when you pay in cash. This agent will make sure that there are no problems with the title of the property and will make sure that the transaction closes without major inconveniences.
Depending on the location of the property, the settlement agent will do a couple of things for you. In principle, it will serve as a third party that will receive, count and transfer the money, and will also facilitate the search and transfer of the property title.
In most states, this agent will be an escrow or title company. In others, these closings are handled by attorneys specializing in closing deals. Talk to your real estate agent and choose a settlement agent who can complete the process and will make sure to research the title thoroughly.
6. Secure a cashier’s or cashier’s check for the collateral
If you offered collateral as part of the settlement, you should request a cashier’s or cashier’s check for the amount promised. Remember that cash is a word, but it doesn’t mean you should bring cash into the buying and selling process. After all, that would be too many bills to count and the amounts are so large that it would pose a great danger.
NOTE: The guarantee money will be held by the settlement agent until the entire process is complete.
7. Conduct an inspection
Before buying the house, you should make sure that there are no hidden problems in your future property. This can be easily resolved through an inspection.
According to experts, cash buyers often include an inspection contingency for “informational purposes only” in their offer. This indicates that if something important is discovered, you can withdraw your offer without asking for repairs.
In other words, by submitting this document, you are telling the seller that you will not request repairs no matter what the inspection reveals. However, you may reserve the right to withdraw from the sale if the inspection reveals a significant issue. If it shows no problems, you will buy the house as is.
8. Get involved in title research
A property’s history is an important part of the home buying process because it assures the buyer that there are no liens or claims on the home prior to taking possession. This should be handled by the settlement agent.
You should also consider purchasing title insurance, which insures your ownership rights to the home in case there is an issue not found in the title search.
9. Apply for home insurance
Although you are buying a cash home and it is not a requirement to insure it, buying home insurance is a very wise decision. After all, you’re investing your hard-earned money in an asset worth hundreds of thousands of dollars, so you don’t want to regret it if something unexpected happens.
If you don’t know what level of insurance you should get for your home insurance, ask your auto insurance agent, for example. This may be a good place to start because you could bundle both policies and it would be cheaper.
NOTE: In the links above we also show you some options that you could consider.
10. Consider an appraisal
Although an appraisal is not really necessary because you will pay with cash, it is always a good idea to confirm that the house you are buying is worth what you are paying. In this way, you can have peace of mind and ensure that you are making a good investment.
One way to approach this issue is to request an appraisal by entering a contingency into the offer. That way, if the house is appraised much lower than the purchase price, they can renegotiate or you can withdraw your offer.
11. Ask for a cashier’s or manager’s check for the amount of the house
Now that you’ve inspected and appraised the house, and everything is in order, it’s time to pay for the house. Secure a cashier’s or cashier’s check for the offered balance minus any collateral you’ve already provided. In case you prefer to make a transfer, you can coordinate the process with the bank. In this way, you will have greater security.
12. Find out what other funds you might need
It is important to consider what other funds you may need when purchasing your home. Are there Homeowners’ association fees? Are you responsible for paying the closing costs or will the seller? These terms must be defined before signing the contract of sale. It’s also a good idea to talk to your agent about what you owe outside of the purchase price so things can be finalized more quickly.
13. Take a final tour
Just before closing the sale of the house, you should make one last visit to make sure that it is in the expected conditions. Make sure the house is sparkling clean, everything is in its place, and the sellers didn’t leave things behind when they moved in. It is also important that you check if the appliances are still there if they were included in the contract. Test them to make sure they are working, as well as the lights and bathroom faucets.
14. Go to the closing of the house
Since you are not applying for a mortgage, the closing process is much faster than when you are borrowing money. According to experts, cash deals can be closed in one to three weeks, instead of a month or more.
When you go to the closing table, be sure to bring your identification, the cashier’s check or wire transfer receipt for the purchase price of the house, and any other documents indicated by your agent.
15. Move into your new home
Finally, you can move in and enjoy your new home. Best of all, you won’t have to pay on the 15th or last of each month because you bought the house with cash. For that reason, you can enjoy all the freedoms that this lifestyle offers you.