A house can be sold in various ways, but most people use the open market by employing the use of an estate agent. However, this is not always the most optimal way, particularly in case of a person looking to sell quickly and with certainty. For some, a cash buyer is the ideal solution.
Nowadays, cash purchases are becoming common in the current housing market. In January 2024, all-cash buyers made up 32% of home sales, marking the highest rate in ten years. The last point where the share stood this high was way back in June 2014 which shows that the cash-based transactions have made a comeback. Continue reading to determine how to buy a cash only house and why it is important.
Why Would a House Be Cash Only?
A seller may only consider cash buyers with a number of reasons behind this decision. It is true that understanding these reasons can keep you in a position to proceed with purchasing the house.
The House Might Have Problems
A house is listed as cash only due to problems that make banks less likely to lend. The problems with structure, water damage caused due to floods, issues with foundation or subsidence, pest infestation like termite infestation or fire damage can make a property too risky to lenders. Banks are unwilling to undertake loans on houses which might lose property or become unsafe, and thus they may reject issuing mortgage loans, leaving cash buyers as the only solution.
The Seller Needs Money Fast
Sellers often prefer to sell homes for cash only because they need money immediately. They do not want to wait for months to settle the mortgage process. Mortgaging may involve a long period of months and some vendors cannot be patient. The urgency created in instances of divorce, foreclosure, inheriting a property after a lengthy legal process, pursuing needed cash in an emergency or moving due to job change are usually some of the factors that push sellers towards a quick sale and one that will be conducted in cash only.
Previous Bad Experiences
Some sellers have had deals fall through because buyers couldn’t get their mortgages approved. After this happens once or twice, they might decide to only work with cash buyers to avoid the disappointment and wasted time.
Can You Buy a Cash Only House Without Cash?
Purchasing a cash-only house without cash may sound contradictory, but there are possible opportunities to earn a decision-now approval also known as underwritten-preapproval or upfront underwriting. In this, the lender conducts a thorough examination of the buyer and they book the loan approval before the buyer even makes an offer. Since the mortgage is completely underwritten and guaranteed, the buyer already has a solid, financing commitment. This will assure the seller that the purchaser will not experience delays or uncertainties associated with mortgaging approval.
Can You Buy a Cash Only House with a Loan?
The short answer is yes, you can secure financing to a cash-only property, even though this is not possible with mortgage financing as we know it. Cash-only houses refer to those properties where the seller only accepts cash or demands customers who can pay the full amount of the property purchase price. The seller frequently requires this to prevent delays that can be caused by the approval of mortgages, appraisal, and other contingencies. It is due to this fact that a seller requiring a cash payment up front at closing will not be satisfied with the approval and financing process of a traditional mortgage lender.
How to Buy a Cash Only House
When you are in serious business to buy a cash only house and you actually have the money, this is how the process runs:
Step 1: Make Sure You’re Really a Cash Buyer
Having money in your savings account is just the first step. As a valid cash buyer, you must be able to indicate that you have the money, and you can access it in a short time. The funds must be ready in accounts where it is easy to draw the money and you must be ready with the latest bank statements. Include funds invested into investments which can be sold off easily and quickly.
Step 2: Get Proof of Funds
Most sellers will not seriously consider your offer unless you can demonstrate that you are willing and do have ready money. This normally implies showing the fresh bank statements to indicate the full funds available. In some cases, a letter of assurance of funds through your bank will also be sought after. In case your money is the result of a stock or other investment sale, you must produce documentation to support this.
Step 3: Make Your Offer
When your finances are saved and condensed, it is time to offer on the property. Cash buyers would usually bid between 75% and 85% of the price that the house would go to when it was on the open market. This can be said to be a low number, but this is because the deal is a cash one. The seller has the advantage of speed, assurance, and the reduced risk of the deal falling through due to financing issues.
Step 4: Get a Home Inspection
Cash payment does not imply that you should forego the home inspection. It is still important to understand the state of the property and identify the possible flaws. This should especially be the case of houses that are listed as cash only because they are quite often unmortgageable because of severe problems. Inspection keeps you safe of unexpected expenses and assures you of making an informed decision.
Step 5: Handle the Legal Stuff
Even in a cash sale, you’ll need legal professionals to manage the transaction. Paperwork will be done by a lawyer or a title company, and that includes a title search to establish there are no legal problems. Property surveys may be required depending on the location and type of home. All relevant transfer documentation must be completed to provide a safe and legal sale.
Step 6: Close the Deal
Cash sales can be a lot quicker than conventional sales and sometimes they close right up within 1 to 2 weeks. On the final day, you will put your signature on the final papers and transfer the money, and become an official owner of the house. As soon as it is all done, you get the keys and can settle down in your new home. It is usually faster and easier, without mortgage delays.
Should You Make Offers on Cash Only Houses?
This depends on your situation and how much you want the specific house.
- In case you require a mortgage, do not needlessly make an offer. The sellers of cash only homes will not open to a financing arrangement.
- Some buyers prefer mortgages for tax or investment reasons. You’ll need to decide if this house is worth using cash instead.
- Always ask why it has to be cash only. A fast sale can be negotiated but major property complications may be a turn off.
- You should expect that cash only homes will be strongly desirable and marked by plenty of competition. Be prepared that your offer can have multiple offers and even bidding wars.
- These houses may come with some not-so-obvious hazards. Allocate funds for repair issues and always get a thorough inspection.
Final Thoughts
Should you make offers on cash only houses? Such properties might appear attractive because they are usually cheaper than other houses, but there is always a reason. Most of the cash only houses are problematic in the sense that they are unmortgageable, meaning that they have structural damages, water issues or legal issues. In other situations, sellers just need a quick sale and would not like to wait until the mortgage is approved.
But in case you do have the money, then it can be worthwhile to make an offer on a cash only house provided you do so carefully. Always make inquiries on why the property is so listed, take a complete inspection and ensure that you are comfortable in the risks involved. Kaya Homes can assist you purchase or sell houses for cash guiding you along the way to make a wise choice.
Frequently Asked Questions
Q: Can I convert a cash only house to a mortgage purchase later?
No, once a seller posts a home as all cash we can assume they have made the determination that they do not want to work with a buyer who is going to use a mortgage loan. They will not alter the terms as the process goes on.
Q: Are cash only houses always cheaper than regular houses?
Mostly they are cheaper as cash buyers normally pay 75-85 percent of market value. But add to that the possible cost of repairs because the problems with these houses can make them unable to be mortgaged.
Q: How quickly can I close on a cash only house?
A cash sale can be closed within a very short time as opposed to mortgage purchases which require a 30-45 days time frame. This varies with the time it will take to study such properties and some legal processes needed and the speed that one provides money.
Q: What happens if I lie about being a cash buyer?
This is termed as fraud and may have serious legal implications. And with not being able to deliver funds at closing you will likely lose a deal and possibly a deposit.
