Buying a Home with Cash: 6 Simple Steps to Make Your Dream a Reality

Buying a home with cash is an attractive option for many, particularly existing homeowners who have built up significant equity in their current property. However, it's not a realistic option for everyone, especially first-time home buyers. In January 2024, 32% of home buyers paid for a house in cash, according to the National Association of Realtors® (NAR). This article will explore the six steps to buying a house with cash, the pros and cons, and answer frequently asked questions to help you decide if this approach is right for you.

Six Steps to Buying a House with Cash:

1. Confirm your budget: Before you start your search, make sure you have a comfortable budget that includes the home price, closing costs, property taxes, and any unexpected repairs or renovations that may come up.
2. Request a proof of funds letter from your bank: This is an official document that confirms the amount of money in your deposit accounts and is typically included with your offer when bidding on a house to reassure sellers that you can make good on the cash offer.
3. Submit a bid: Discuss your cash offer strategy with your real estate agent, including the price you're comfortable with, the amount of earnest money you'll provide, and any contingencies you'd like to include to protect yourself and your earnest money.
4. Provide earnest money: If your cash offer is accepted, provide the promised earnest money to the seller or a third-party holding company. Earnest money is a good-faith deposit that signifies your interest in purchasing the home.
5. Take measures to protect yourself and your home: While not legally required, conducting a home inspection and appraisal can offer peace of mind and help identify costly repairs or issues that may not be immediately apparent.
6. Close on your home: The final step is the closing process. Since you're not financing the purchase through a lender, the closing experience is more streamlined. You'll provide any remaining funds due and sign the legal paperwork necessary to close the deal officially.

Pros of Buying a House with Cash:

• Stand out from other buyers: Cash-purchase house buyers are stronger candidates since the money is ready up-front, reducing the risk of a lender denying funds due to low appraisals or inspection issues.
• Save on interest: The cost of borrowing a mortgage loan is steep, with average 30-year fixed mortgage interest rates well over 6%. Buying a house with cash can save you hundreds of thousands of dollars in interest over a 30-year mortgage loan term.
• Avoid monthly mortgage payments: Paying with cash means you don't have to worry about a sizable mortgage payment each month.
• Faster buying experience overall: As an all-cash buyer, you'll spare yourself from the cumbersome steps involved with securing a mortgage loan.