If you’ve ever watched a real estate show, particularly one that centers on the luxury market, you’ve probably heard quite a few references to all-cash offers. In the current market with low inventory and bidding wars, all-cash offers are a popular way for buyers to compete.
You may find yourself wondering what that means.
There’s a secret to an all-cash offer you may not be aware of—you can still get a mortgage.
The Basics of An All-Cash Offer
An all-cash offer means that a buyer plans to pay cash for the home they’re putting an offer on. The key here is that the buyer, in doing so, can prove they have the money in the bank to do that. A cash offer is appealing for a seller because it makes for a faster process with fewer chances for something to go wrong along the way.
If a buyer plans to get a mortgage, they’re riskier for a seller. The less financing has to be involved in a deal, the better from the seller's perspective.
If someone buys a home without financing, they’ll either use a cashier’s check or transfer the funds electronically.
Since no lender is involved, the closing time with cash purchases tends to be much faster. These deals can close in just two weeks if necessary. Those two weeks are just enough time to clear any liens, prepare the paperwork and provide insurance.
For a financed purchase where the buyer is getting a mortgage, the closing time is, on average, at least 30 days. It can be as long as 45 to 60 days to closing.
The Process for Buying a House All-Cash
If someone’s going to buy a house all-cash, the following are the steps that usually occur in the process:
- The first step is for a seller to accept the buyer’s offer, and then a Purchase and Sale Agreement is completed. This is also known as going under contract.
- From there, the next step is the verification of proof of funds. You need to make sure, if you’re the seller, that your buyer actually has the cash they say they do. You may ask for earnest money, which is usually 1-2% of the sales price. Then, you may request proof of funds as bank or investment statements. A real estate agent will help you with this.
- You’ll have to hire a title and escrow company or the buyer might be responsible for this, depending on the state you’re in. The title company makes sure there are no liens to be addressed, and they’ll handle title insurance. On closing day, a title company makes sure the ownership of the property changes hands appropriately. The escrow company deals with closing documents and the transfer of funds. They’re also responsible for completing legal paperwork.
- Buyers may submit their offer with an inspection contingency, which then means they could have an option to renegotiate the sale price or request repairs, depending on what’s found during the inspection.
- Then, it’s time to review and sign the closing documents. Even with an all-cash transaction, you can expect a fair amount of paperwork.
Can You Compete If You Need a Mortgage?
Yes, buyers indeed tend to prefer all-cash buyers, especially right now in a seller’s market. There are ways you can be considered an all-cash offer while still using a loan.
For example, some lenders have what’s called decision-now approval. It’s not exactly cash, but in the eyes of a seller, it may have the same benefits because it has a preapproval that’s underwritten. That means the loan is already funded, and the lender verifies that the remaining amount of the sales price is officially accounted for.
Then a buyer can take financing contingencies out of their offer without worrying about losing their earnest money because they’ve already secured a mortgage.
Doing something like this, depending on what your lender offers, can make you a strong buyer that’s almost as good as all-cash.
Finally, if you’re interested in that approach, you’ll have to shop around to find a lender offering upfront underwriting because not all do.