What is a cash offer on a house?
A cash offer is an all-cash bid, meaning a homebuyer wants to purchase the property without a mortgage loan or other financing. These offers are often more attractive to sellers, as they mean no buyer financing fall-through risk and, usually, a faster closing time.
Are cash offers common?
Typically, cash offers tend to be more common in these scenarios:
- An investor (or investment company) is interested in the property
- The buyer has just sold their previous home and has sale proceeds to pull from
- The seller has approached an iBuyer about buying the house
- There’s lots of competition and a buyer wants to stand out
- The property is in need of repairs or renovations and is attractive as a fix-and-flip home
Keep in mind that cash offers can crop up in any transaction though, not just those mentioned above. If you’re planning to buy or sell a house in the near future, it’s important to be aware of these offers and how they work.
How is the home buying process different with a cash offer?
With a cash offer on the table, the buying and selling process is a little different than it would be with a mortgage involved.
For one, the process is generally faster. There’s no mortgage application, documentation, or underwriting, and the buyer typically doesn’t need an appraisal. As a buyer, you’ll still need to sort out the title policy and insurance, provide proof of funds, and sign closing documents
Some ways the cash buying process can differ:
- Contingencies: There are usually fewer contingencies with cash sales. Buyers don’t need the financing contingency (that’s for mortgage loans), and there may be no need for a sale contingency either. Some buyers may still want an inspection contingency.
- Appraisal: Appraisals are typically lender-mandated, so without a lender, a buyer usually won’t have to worry about them. There are some cases in which a buyer may still want an appraisal, though — especially if they’re an investor looking to guarantee returns.
- Closing: The closing process on a cash offer is much more simple. As a buyer, you’ll sign the settlement statement, title, and deed, hand over a cashier’s check (or wire the money), and receive your keys. Without financing in tow, the paperwork is reduced significantly. Your closing costs are also lower since there aren’t any lender fees attached.
- Title & escrow: As a buyer, you’ll still need a title and escrow company to handle the transaction, but you may have more leeway in choosing these parties without a lender involved. Shopping around will help you compare fees.