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Buying a house with cash in 6 simple steps
Buying a house with cash isn’t realistic for many, especially first-time home buyers. But if you’re selling your home and buying another one simultaneously, offering all cash may be an option. High home prices have made buying a house with cash more feasible for existing homeowners, thanks to soaring home equity. In January 2024, 32% of home buyers paid for a house in cash instead of through mortgage loan financing, according to the National Association of Realtors® (NAR).
Paying for a house in cash is a significant financial commitment with advantages and downsides. Consider these before submitting an offer on your next home. By learning how to buy a house with cash, you can decide whether an all-cash buying approach is worth it.
Read more: How to buy a house in 13 steps
In this article:
6 steps to buying a house in cash
There’s more to buying a home with cash than exchanging money for the key. If you’re interested in getting your next home without financing, here are a few general steps to expect with a cash-purchase house.
1. Confirm your budget
With so much cash on the line — and your financial stability at stake — confirming that you have a comfortable budget for the house purchase and any surprises that come afterward is crucial.
Account for the home price, closing costs, and property taxes. You’ll also want to budget for other related costs, like home inspections and appraisal fees (if you choose to request them), moving costs, and unexpected repairs or renovations after the home-buying process is complete.
Learn more: How much money do I need to buy a house?
2. Request a proof of funds letter from the bank
A proof of funds (POF) letter is an official document that is bank-signed or notarized from your financial institution confirming the amount of money in your deposit accounts. A copy of this letter is typically included with your offer when bidding on a house to reassure the home sellers that you can make good on the cash offer if they accept it.
Dig deeper: How to make an offer on a house
3. Submit a bid
Discuss your cash offer strategy with your real estate agent. This includes deciding on a price you’re comfortable with, earnest money amount, and any contingencies you’d like to include to protect you — and your earnest money — if the deal falls through due to appraisal or inspection concerns.
Learn more: Real estate contingencies — What they are and how they protect buyers
4. Provide earnest money
If your cash offer is accepted, the next step is to provide any promised earnest money to the seller or a third-party holding company. Earnest money is a good-faith deposit that signifies your interest in purchasing the home. It assures the seller that you’re serious about your purchase offer and don’t intend on backing out simply because you changed your mind.
The amount can be put toward home-buying expenses, such as closing costs. If you decide to break the purchase agreement, likely due to a legitimate contingency concern, you’ll get back the earnest money. If you back out for other reasons, like to pursue a different house, the seller may keep the earnest deposit.
Dig deeper: What is earnest money when buying a house?
5. Take measures to protect yourself and your home
Buying a house with cash gives you the freedom to opt out of the not-so-glamorous requirements of a mortgage-funded house purchase. For example, when paying in cash, you aren’t legally required to order a home inspection or appraisal or to purchase a homeowners insurance policy.
Conducting these steps, however, can protect your best interest as a buyer and offer peace of mind. For example, an inspection can surface costly repairs, like a faltering foundation or electrical hazard, and an appraisal determines the house’s fair market value based on comparable sold homes in the neighborhood.
Dig deeper: Your home inspection checklist
6. Close on your home
The final step to buying a house with cash is the closing process. Since you aren’t financing the purchase through a lender, the closing experience is more streamlined.
If you haven’t already arranged a wire transfer to the title company, you'll provide the remaining funds due. Be prepared to pay your share of the closing costs if negotiations weren’t made for the seller to cover 100% of closing expenses.
Lastly, expect to sign the legal paperwork necessary to close the deal officially. Then, you’ll receive the keys (unless the seller has negotiated a delayed vacate date).
Read more: What to expect when closing on a house
Pros of buying a house with cash
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Stand out from other buyers. When financing a home with a mortgage, the seller faces a greater risk of the lender denying funds due to low appraisals or inspection issues. Cash-purchase house buyers are stronger candidates since the money is ready up-front.
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Save on interest. The cost of borrowing a mortgage loan is steep, with average 30-year fixed mortgage interest rates well over 6%. Buying a house with cash can save you hundreds of thousands of dollars in interest over a 30-year mortgage loan term. Let’s assume you buy a $400,000 home with a 20% down payment and 30-year fixed rate of 6%. In this case, you’d save $370,682 in mortgage interest alone.
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Avoids monthly mortgage payments. Paying with cash means you don’t have to worry about a sizable mortgage payment each month. Based on the example scenario above, you’d avoid a $1,919 monthly payment toward principal and interest, which could go toward other financial goals.
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Faster buying experience overall. As an all-cash buyer, you’ll spare yourself from the cumbersome steps involved with securing a mortgage loan. This includes side-stepping lender requirements like preapproval, underwriting, home appraisals, applications, and extra paperwork when closing on your home.
Learn more: Current 30-year mortgage rates
Cons of buying a house with cash
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Could delay your home purchase. If you’re a first-time home buyer without a lot of cash in reserves, saving enough cash to buy a home outright will probably take a while. Waiting until you have enough money instead of taking out a mortgage loan can come with many potential pitfalls. House prices will likely rise as you wait — meanwhile, you could spend that time building equity in a home you own.
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May set you back on financial or life goals. Paying for such a significant expense in cash means you could place other financial priorities and goals, like investing or paying down high-interest debt, on the back burner.
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Lost financial liquidity. Although you can buy a house with cash, devoting all of your cash assets toward your home purchase creates a sudden loss in liquidity. This could be problematic if you chose to expend all of your cash savings or investments toward the house with little to no funds left for emergencies.
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Ineligible for mortgage interest deduction. If you’re not paying interest on a mortgage loan, you won’t be able to take advantage of certain tax incentives, including the home mortgage interest deduction.
Dig deeper: How the mortgage interest tax deduction works
Buying a house with cash FAQs
Is buying a home with cash a good idea?
Buying a home with cash has its benefits. It can position you as a competitive buyer, save you money on mortgage interest, and make the closing process easier and faster. However, a cash-purchase home has downsides, like a longer savings timeline before buying a house and reducing your financial liquidity.
How hard is it to buy a house with cash?
If you can buy a house with cash, you can expect a more effortless buying experience. With a cash-purchase house, you’ll avoid requirements that prolong the process, like mortgage underwriting, and you can opt out of a home inspection. Although it’s not technically required, insisting on a home inspection and appraisal can help protect buyers from costly surprises later on.
How much less can you offer on a house with cash?
According to a study by the University of California San Diego, home buyers who buy a house with cash pay 10% less on average than buyers who finance their purchase with a mortgage loan.
This article was edited by Laura Grace Tarpley.
