What to know about cash offers before you buy a home

man waiting at the gate

Whether or not you’re using a cash offer, knowing how they work tells you a lot about what to expect before you make an offer on your new home.

Wherever the homebuying market is particularly competitive, it seems like cash is king. That’s because a cash offer doesn’t require a mortgage. No mortgage means more speed and more certainty, which are more attractive to a seller. 

Buyers with proceeds from a previous home sale or mountains of savings can make cash offers. But is that all there is to it? Short answer: nope! There are more ways than one to make a cash offer these days–and even  compete with them if you’re going the traditional route. 

Here’s what you should know:

1. There’s usually not any actual cash involved

Despite the name, nobody actually hands over a suitcase full of actual cash. Just like with a traditional home offer, money almost always changes hands through banks, usually with a cashier’s check or wire transfer. In fact, when it comes to money, almost all of the traditional steps still exist when buying a home in cash. The buyer will likely still have to provide an earnest money deposit and the transaction will still be passed through escrow and title companies, too.

2. You don’t actually have to have all the cash yourself to make a cash offer

Many companies now provide cash offer services. Flyhomes and other innovative brokerages are in more and more markets nationwide to help clients make a cash offer up front. The buyer still finances their purchase through a traditional mortgage loan after using the funds from a short-term loan to offer cash to the seller. This allows more people to compete in tough markets without requiring buyers to fund their purchase without a loan. 

3. Not all companies that provide a cash offer are the same 

Some companies that provide a cash offer may only provide a cash offer without providing any other savings options or guarantees. Flyhomes offers low rates, price matching, and rebates to make sure the cash offer is both competitive and cost effective. 

4. You might not need a cash offer to buy every home

When you hear stories from people trying to buy homes, it may seem like everyone has lost at least one traditional offer to a cash offer. But not every home warrants a cash offer and not every seller is interested in only accepting a cash offer. Some sellers have spent their whole life in their home and want to make sure it goes to someone who will honor that, regardless of whether the buyer is using a mortgage or not. Some sellers don’t yet trust cash offers because of how new and dramatic they seem. Before you make a cash offer, make sure it’s actually the best strategy for your situation and not just the most eye-catching. 

5. Cash offers are not free, but you may not have to pay extra to make one

This sounds obvious, but there can be more fees to make a cash offer than a traditional one. Cash offers made via a short-term loan tend to come with added costs in the origination fees, underwriting fees, and the costs associated with refinancing the short-term loan into a mortgage. Some companies pass fees onto homebuyers and some don’t.

6. You can compete against a cash offer

Cash is a good way to stand out to a home’s seller, but it’s not the only way. Whatever you can do to provide speed and certainty will keep you in the game. Getting your mortgage pre-approved or, better yet, pre-underwritten means your financing will likely not fall through. Waiving contingencies like inspections are a good way to speed up the process and make your offer stand out. And personal letters can add a special touch for those sellers who want to make sure their home will be taken care of in the future. 

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