Even in a cooling market, cash offers are more common than you think. Almost one-third of US homes sold in July 2022 were all-cash transactions.
With rising mortgage rates and expensive financing, cash offers will be even more attractive for home sellers and buyers alike well into 2023. Here’s our guide on how to make a cash offer on a house – with or without cash.
What is a Cash Offer in Real Estate?
A cash offer in real estate means that the buyer would purchase a house without any financing or mortgage loan. The buyer would buy the property either with a check or via a wire transfer. This means the buyer has the entire sale amount in their bank account.
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When Should You Make Cash Offers?
Making a cash offer under the following circumstances would make you the most profit:
It is a Hot Seller’s Market
Home sellers get several offers in a hot seller’s market. You can stand out from the competition by making a cash offer. Access to hard cash and faster closing makes cash offers on homes more appealing than financed offers.
Interest Rates are High but you have Liquid Cash
With mortgage rates touching record levels, making a cash offer on a house can save you a fortune in mortgage payments.
How to Make a Cash Offer on a House?
Following are the steps involved in offering cash for a house:
Step 1: Make an Offer
Present your offer to the home seller or the seller agent – either directly or through FSBO sites like Zillow. We recommend you hire a licensed real estate attorney to draft an offer.
Step 2: Negotiate the Purchase Price
Negotiate with the home seller to bargain the purchase price. Pitch your best offers like letting go of some contingencies, etc. to negotiate effectively.
Step 3: Furnish Proof of Funds
Showcase a written letter from your bank or your bank account statement to confirm that you have the required funds.
Step 4: Conduct Home Appraisal and Inspection
This is an optional step but is highly recommended. Getting the house appraised ensures you do not overpay for the house. Whereas, a home inspection conducted by a home inspector ensures you save yourself from buying a property with serious defects.
Step 5: Sign the Purchase Agreement
Once the above contingencies are fulfilled, both parties sign the sale contract. It contains all the terms and conditions involved in the transaction.
Step 6: Deposit the Escrow Money
Open an escrow account and deposit the earnest money into that account. Escrow deposits provide an added level of security to the transaction.
Step 7: Get a Title Report
A clear title and a meticulous transfer are key to a real estate transaction. Title insurance protects you if there is any problem related to the prior ownership of the property. It makes you whole in case of a legal dispute related to the title.
Step 8: Transfer of Ownership
Get the ownership transferred by signing the deed and depositing the balance amount in the escrow account.
How to Make a Cash Offer Without Cash?
You can offer cash for houses without cash through cash-offer loan options. Some cash buyers approach a financing company to purchase a property on their behalf and then pay the company back with mortgage financing.
Cash home financing works something like this:
- The cash financing company invests its own money on your behalf.
- Cash financing companies offer quick closing to entice home sellers.
- Impressed home sellers accept the cash offer, beating all other offers in their arsenal.
- Once the transaction is complete, the company holds the property while you arrange the mortgage financing.
- You buy the property from the company with the money obtained from the mortgage lender.
Several cash-offer companies like Ribbon Home, Homeward, Opendoor, etc. offer all cash offer financing. For the cash offer programs, cash offer financing companies charge 1%-3% of the purchase value as their service fee.
Companies That Will Help You Make All-Cash Offers
All cash-offering companies do not work the same. Some work with “buy before sell” home buyers and some simply back your offers with cash. Here are the top companies that will help you make appealing cash offers:
1. Ribbon Home
The company has two cash offering packages – Ribbon Boost and Ribbon Reserve.
- Ribbon Boost: The company purchases a house on your behalf by backing your offer with cash and appraisal protection. After securing a mortgage, you can repurchase your home from Ribbon at the same price.
- Ribbon Reserve: It is similar to Ribbon Boost, except you can move into your new house while shopping for a mortgage. This Ribbon loan package is ideal if you want to close quickly.
» Ribbon Home Reviews: Read to know which Ribbon loan suits you the best
Homeward helps you make a cash offer in three ways:
- Buy Before You Sell: Homeward purchases new property in full cash before you sell the existing one. You move into the newly purchased home, list and sell the old one, and use the proceeds to repurchase your new home from Homeward.
- Buy With Cash: To make your offer more competitive Homeward backs your offer with cash. Unlike buy-before-sell, you need not sell your existing house. Homeward Buy Before Sell empowers first-time home buyers to make cash offers.
- Cash-Backed Offers: If your mortgage financing falls through, the Homeward backs your offer with cash. A cash-backed offer from Homeward will strengthen your offer but will leave you on the hook to pay a 1% fee, even if you do not use the entire cash.
» Homeward Reviews: Discover how Homeward differs from other cash-offering companies
3. Homie Cash
Homie Loans announced Homie Cash™, a program that allows buyers to make all-cash offers to increase their chances of winning the perfect home drastically.
The company levels the field by allowing buyers that don’t have hundreds of thousands of dollars in their bank accounts to become cash buyers and compete against investors and iBuyers like Opendoor, Offerpad, etc.
As a buyer, you need to understand that you still need to get a traditional mortgage to pay back Homie Loans. This means you have two closing costs and end up spending more than necessary on one transaction!
» Homie Reviews: How this cash offering company works?
4. Opendoor Cash Offers
To secure a cash offer through Opendoor you need a mortgage pre-approval first. Opendoor pairs you with one of their agents to help you figure out your cash offer budget. The Opendoor agents also help you negotiate various contingencies involved.
Once the seller accepts the offer, Opendoor will purchase the house in full cash and hold it for you. In the meantime, you can shop for the mortgage and buy back your house from Opendoor.
» Opendoor Reviews: Everything you need to know about Opendoor Cash Offers
5. HomeLight Cash Offer
Homelight is a cash offer company that deals in both buying and selling houses. The company is willing to make cash offers on your behalf and resell it to you if you meet their cash offer criteria.
The company offers guaranteed closing. This makes Homelight stand apart from other cash financing companies.
» Homelight Cash Offer Reviews: Read what cash home buyers have to say about Homelight
What are the Pros and Cons of Making a Cash Offer?
Just because you have the cash doesn’t mean you should make an offer on a house. Assess both the pros and the cons before bidding for a house on sale.
Benefits of Making a Cash Offer on a Home:
- You Save Hundreds of Thousands in Mortgage Payments: Mortgage rates in the US are set to increase in 2023. By making a cash offer on a home you save several hundred thousand that you can invest somewhere else.
- Home Sellers will Find Your Offer More Appealing: Lower risk of fall through, simpler & quicker closing, and lesser contingencies, are some of the reasons why cash offers appeal to most home sellers.
- You will cut down on the Closing Costs: Since you will be skipping financing you save all the lender-associated closing costs. This includes application reviewing costs, loan origination costs, and even home appraisal costs in some cases.
Risks of Making a Cash Offer on a Home:
- A Significant Liquidity is Tied Up: A big chunk of your investment gets trapped in a non-liquid asset. If an emergency arises, you will have limited liquid funds in hand. Assess such emergencies before making a cash offer on a house.
- You Might Skip Some Important Steps in the Transaction: When getting a mortgage, the lender requires the buyer to get the property appraised. While making a cash offer you have no such obligation and you might end up overpaying.
- You will Lose Out on Mortgage-related Tax Benefits: Mortgage payers enjoy tax incentives in the form of mortgage interest deductions. As a cash buyer, you will miss out on these benefits.
» Pros and Cons of a Cash Offer on a House: Read before you make a cash offer
Should You Make an All Cash Offer?
Yes, you should make cash offers on houses. With mortgage rates reaching a new high, cash offers are more appealing than ever. It will make you stand out from other buyers and ensure you close on the house quickly. In case, you don’t have cash in hand, work with a cash-offering company that can make an appealing contingent-free cash offer on your behalf.
Frequently Asked Questions
1. How do you make a cash offer stronger?
You can make your cash offer attractive by:
1. Making an offer above the asking price
2. Waiving inspection and appraisal contingency
3. Including an escalation clause
4. Writing an appealing offer letter
2. Are cash offers more likely to be accepted?
Yes, a cash offer is more likely to get accepted. Because a cash offer involves less contingency, offers quick closing, and is less likely to fall through.
3. Can you make a cash offer without proof of funds?
No, you cannot make a cash offer without proof of funds (POF). A home seller will most likely ask for a POF to confirm that you have the offered amount with you.
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