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How do cash offers work?

cash offer on a house
If you're in a position to offer cash for a house, count yourself lucky. Here's what you need to know to get the deal done.

When there’s a cash offer on a house, sellers’ eyes tend to light up. That’s because without a mortgage lender involved, they can close on a house faster without any concerns about the buyer’s financing falling through. But how does a cash offer on a house work?

Here’s what a cash offer in real estate is and how it changes the home-buying process.

What is a cash offer on a house?

A cash offer is when a home buyer offers a seller the entire cost of the house, with no mortgage or any other type of financing involved. Buyers often prefer cash offers, even if they’re lower than an offer from a buyer with mortgage pre-approval.

What makes a cash offer different:

You don’t need an appraisal (but you still might want one).

Mortgage lenders require a home appraisal so they know for sure that the home is worth at least as much as they’re being asked to finance. That reduces their financial risk in the case of foreclosure. With a cash offer, there’s no lender so no one to require the appraisal. But cash buyers might consider getting an appraisal done anyway. Just like a lender, you don’t want to end up with an asset that’s worth less than you paid for it.

A cash offer goes faster, with less risk for the seller.

Underwriting a mortgage is one of the lengthiest steps in the timeline of buying a house. It can take 30 to 60 days. And there’s always the chance that some change in the buyer’s finances since pre-approval will cause the lender to deny them the loan. Without the mortgage underwriting process, sellers save time and avoid any risk.

A cash offer is a stronger offer.

A seller may choose a cash offer over mortgage offer even if the buyer with a mortgage offers more. The reasons are simple: they’ll close sooner (meaning they’ll get paid sooner), and without the mortgage underwriting and appraisal process there’s less of a risk that the deal will fall through.

Cash buyers need to show proof of funds.

Although it’s not quite as complicated as getting approved for a mortgage, cash buyers still need a financial institution’s help to make their offer stick. Cash buyers must show the seller some kind of proof of funds, like a bank statement or certified financial statement. Then the seller can rest easy knowing the buyer has the necessary cash for the sale.

Cash sales have lower costs.

The costs of buying a home can be much lower when buying with cash. In a traditional sale, you have to pay a lot of bank-related fees during closing, including credit check costs and origination and processing fees. And, of course, without a mortgage, cash buyers don’t pay any interest, saving tens of thousands of dollars over the years.

Cash buyers can make an offer on any house.

With some types of mortgages, like FHA or USDA loans, buyers are restricted to certain kinds of houses in certain locations or in a certain condition. But cash is always welcome anywhere.

Ways a cash offer is the same as a mortgage offer:

Real estate agents are still important.

Cash buyers may not need a mortgage lender, but they should still find a real estate agent to work with. Agents are invaluable in the nitty-gritty of negotiations, drawing up your purchase agreement, getting an appraisal, and more. And, as always, the seller pays the agents’ fees, so there’s no reason not to take advantage of an agent’s expertise.

Trulia can help you connect with trustworthy Premier Agents in your area who will work hard for you. You can request to be connected with a Premier Agent on any property listing. These agents meet Trulia’s high standard for service, so you know you’ll have a great home buying experience with their personal support.

It’s smart to have an inspection done.

A speedy sale might be a cash buyer’s advantage, but it’s still smart to have a home inspection done before you close. The inspection is there to protect you from unwanted surprises in your new home—and if any surprises do turn up, you can negotiate a lower price and use some of your cash savings to fix up the house.

Cash buyers pay some of the same fees.

Some home buying fees are the same whether you have a mortgage or make a cash offer. You’ll need to submit an earnest money deposit and pay transfer taxes, escrow fees, and other closing costs. And don’t forget about homeowners insuranceHOA fees, and taxes. Sometimes these ongoing homeownership costs are rolled into your mortgage payment, so if you buy with cash, make sure you are prepared to make the payments on your own.

Ready to make a cash offer? Find a home where you’ll love to live on Trulia.