What's Better: Buying a House with Cash vs Mortgage?
Kelly K. | Nov 23, 2021
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By Kelly K. on Nov 23, 2021
If you shopped for a home in 2020 or 2021 and felt like you were competing against a lot of cash offers, it wasn't your imagination. In 2020, a whopping 36% of home sales were paid in cash!
What are the pros and cons of this approach? And how, exactly, do you make a cash offer in real estate?
There are two ways a buyer can make a cash-only offer on a house. We're going to let you in on a little secret about how anyone who qualifies for a mortgage can also make an all-cash offer on their dream home. But first, let's start with the well-known way.
Traditionally, the only way to make a cash offer on a house was to have cash in-hand.
Those who could afford to do that in a high cost of living (HCOL) city fell into two camps. Individual buyers who had a lot of cash -- the exceptionally wealthy, those who inherited money or had a generous rich relative, or those who just sold their home and could roll the proceeds into a new home purchase. And then there are individual or corporate investors.
Investors buy real estate in order to flip the property and turn a profit. Ever wonder about those signs on the side of the road that promise fast cash for your ugly house? Yeah, those are a subset of house flippers. Investors don't plan to live in the neighborhood and are motivated by making a big, and fast, profit. To bring sufficient cash to the table, these buyers may have their own investors backing the deal or group of deals. Or they may have cash from a recent sale or a cash-out refi from a previous investment property.
Investors prefer the process of buying real estate with cash to be fast and streamlined: find a house that looks like it'll be profitable, make an offer (usually without a real estate agent), use a lawyer to finesse the contract, close the deal, wire the money to the seller, and start the flipping process.
Let's put aside investors and their financing strategies and focus on the regular people who are trying to buy a home to live in and enjoy.
Even if you can pay for a new home with cash upfront, should you? The disadvantage of paying cash for real estate is losing liquidity or tying up money that could be more productively invested.
Today’s low-interest-rate environment means financing a home purchase is still a financially sound strategy.
On the other hand, if you go the route of a traditional mortgage, you lose the bargaining power of a cash offer. After all, sellers prefer cash buyers because they aren't subject to the bank's financing and appraisal contingencies (and all the other reasons a traditional loan can fall through or drag out).
Sounds like a dilemma.
But there's a second option that solves this problem for those who have the cash but prefer the flexibility of a longer term home loan … an option that also gives a leg up to those who can't put 100% down but who qualify for a mortgage.
The good news for everyday individuals and families who dream of buying a home is that it's possible for regular people to make a cash offer, just like investors and the wealthy.
The secret lies in partnering with Accept.inc. As a “technology-enabled lender,” we're making it easy and fast for homebuyers to submit all-cash offers, for no additional fees.
The process for becoming a cash buyer with Accept.inc is similar to the mortgage process you already know and don't love ... but without the slow, cumbersome, and painful parts that cause you heartburn.
Here's how it works: First, we start by letting you know how much you pre-qualify for so you can start looking for your dream house right away; simultaneously, we begin the Cash Approval process.
If you qualify, you'll get Cash Approved in days, not weeks or months. Cash Approval is not the simple prequalification you'll get with traditional lenders, which can fall apart during the end of the offer process; once you're approved, you can start making cash offers with confidence that your financing won't fall through!
Once you find a house you want to buy, we run a quick value check on the home. Then your agent works with our cash transaction specialist to finalize the offer letter. The seller is offered cash for their home and shown proof of funds.
In today's real estate market, a cash offer is four times more likely to win than an offer with a traditional mortgage. Even better, the power of cash is so great that you are in a better position to negotiate price and terms.
How much negotiating power? Would you believe Accept.inc buyers get an average discount of $11,545 off the highest offer in a bidding war? It's true -- that means their cash offer won by offering nearly twelve thousand dollars less than the highest bid! And in a non-competitive situation of 2 or fewer offers, our cash buyers saved even more -- they paid an average of $15,979 below list price on their home purchase in Denver.
That's more money back in your pocket or more equity on your net worth balance sheet from day one. And who would say no to that?
Once the deal is done, you begin paying back the loan just like a regular mortgage. It's fast and convenient. And it costs you nothing extra.
All the pros of making a cash offer in real estate. None of the cons. Because it turns out that having cash isn't a key requirement for being a cash buyer. Pretty cool, don't you agree?
Kelly K. | Nov 23, 2021
Kelly K. | Nov 23, 2021
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