How to buy a house cash: The process
Paying cash for a house comes with pros and cons. If you are in the financial position to pay cash for a property, then you probably already know that doing so comes at an opportunity cost. You will appreciate that paying cash for a property ties up all that cash in that property.
Could that money have been used for other investments that could potentially make you more money? Well for some buyers, paying cash makes more sense.
There are also potential tax write-offs that are being missed by parking a significant amount of cash in a property. On the other hand, if you plan to stay in that building for a significant number of years, paying cash could end up saving you a lot of dough.
Step 1: Find a Trusted Real Estate Agent
The first step to purchasing a house with cash is to make sure you have a trusted team in place. An essential member of that team should be your real estate agent. This agent will help you make critical decisions and will handle all of the paperwork (and potentially) save you a lot of stress throughout the whole process.
Step 2: Decide on Where you Want to Purchase. Location. Location. Location.
Paying cash may potentially save you money with some of the fees that you would otherwise pay to a financial institution or investor. You may be able to improve your property’s curb appeal and drop in your dream kitchen. However, there is one thing that you will never be able to change about your property and that is where the property itself is located. Therefore, take the time to decide on where you truly want to live. Select your preferred location and visit that location at various times of the day to make sure that is where you want to be located.
Step 3: Obtain Proof of Funds From the Bank
After you have given your agent your location parameters, the next thing that the agent will need from you is proof that the cash that you have actually exists.
This information is necessary, because in a competitive market where houses are selling quickly, most sellers will ignore offers that do not have evidence for how the property will be purchased.
Get a letter from your bank and ask them to state up to what price you want to pay cash. That means that if you want to pay a maximum of $200,000 cash for a property, let the bank give you a letter to say that you can pay up to that amount. Getting a proof of funds letter will provide more privacy as opposed to a recent bank statement.
Step 4: Visit the properties that interest you and start making offers.
It is every sellers dream for cash offers at or above the property’s asking price. Some sellers may even be willing to sell a property for slightly less than the amount they are asking, because a cash buyer is much less risky compared to a buyer that has to finance a property.
A responsible agent will make sure that all offers include contingencies to protect you as a buyer. A contingency is a way of saying to the seller, “if certain issues arise, I have the right to walk away.”
From a cash buyer perspective, some of the contingencies that may be included in a cash offer would be an appraisal contingency and an inspection contingency.
Step 5: Choose a settlement agent
In Georgia, a real estate attorney will be your settlement agent. When your agent submitted your offer, they included information about how you were going to pay for the property. Most likely, your agent will encourage you to include earnest money with your offer. An earnest money is a way of saying “I am so serious about this purchase; I am willing to put x-amount of money on the line.”
Earnest money is not a requirement to submit an offer on a property in Georgia, however, most offers tend to include earnest money. This money is typically refundable once the buyers did not violate the terms of the contract.
Either the seller or the buyer may select the settlement agent. Typically, a closing agent will be selected that is easy for both parties to reach on closing day.
Step 7: Start submitting Offers
Once you have found the property that you want. Your agent will prepare and submit offers on your behalf.
Your agent will submit offers with your stipulations and contingencies until a seller accepts your offer, or at least makes a counteroffer to your offer. In real estate, a counteroffer is a response to an offer. That counteroffer is now the new offer to the buyers who submitted the initial offer.
A property listed for sale is the seller’s offer to potential buyers. Once a seller accepts an offer, by signing the offer to purchase documents and providing a copy of the signed offer back to the buyers, the house is officially under contract. The property is now one-step closer to being in the possession of new owners.
Step 7: Offer accepted
Once the offer is accepted, the buyer will now carry out their due diligence to fulfill all of the obligations that they stipulated in their offer. This period where buyers are allowed access to the property to carry out inspections is referred to as the due diligence period.
Step 6: Secure your earnest money check
Get your earnest money check to your settlement agent. The settlement agent will stipulate how you will pay your earnest money. No matter the way in which you deposited your earnest money, make certain to keep a copy for your records.
Your agent and the seller’s agent may also request a copy of the earnest money receipt as well.
Step 7: Get an inspection
One of the first things that your agent should suggest is that you get the property inspected. You can never be too sure when it comes to making a large purchase, such as buying real estate.
You do not want to have any major repair surprises soon after you have moved into your new property.
Step 8: Order a Property Title Search
One of the most important steps in real estate is to make sure that you carry out a title search, especially when you are paying cash. If you were financing your property, the bank will carry one out as a part of their underwriting and charge you for it.
However, when you are paying cash, it is your responsibility to make sure that one is done. The closing attorney or your agent may suggest title insurance companies for you to choose from and make a decision.
Step 9: Purchase Title Insurance
Title insurance should be a key part of your closing procedure. Make sure that one is purchased for the property that you are paying cash for. Even the most diligent title search institution may miss a critical issue with the title and you could find yourself on the losing end of a legal issue.
A very good way to protect yourself against a missed title issue is to purchase title insurance.
Title insurance saved me hundreds of thousands of dollars because the title company that my wife and I used for a house that we bought back in 2009 had title issues that were missed by the title search company. Thankfully, our agent at the time strongly encouraged us to purchase title insurance. To this day, we are very happy we heeded the advice.
Step 9: Consider getting a land survey
Getting the property surveyed is especially important if the property has not been surveyed in a long time or the borders are not well defined.
A survey may also highlight the parts of your property that may be in a flood plain or the areas that may have been encroached upon by neighbors.
The more knowledge you have about the property that you are acquiring before you take ownership may protect you for years to come.
Step 10: Get homeowner’s insurance
Even though you are paying cash for your property, it is a wise decision to purchase property insurance. Make sure that your policy is adequate to cover your potential liability. You do not want to see your hard-earned cash literally going up in smoke.
Step 11: Consider an appraisal
A licensed appraiser carries out an appraisal. This appraisal will highlight the fair market value of a property at the time the appraisal was carried out.
Especially in a sellers’ market, you do not want to pay more than you have to for your property. Therefore, this is a wise contingency to add at the time that you make your offer. This way, you can use this to potentially negotiate the price more favorably.
Step 12: Secure a check for the balance
Your settlement agent will disclose how they want you to bring your balance to closing. Most likely, they will not accept wads of cash at closing. You are paying for the services of the closing attorney, so make sure to consult them early and often about any questions and concerns that you have about your upcoming closing.
Step 13: Figure out what other funds you might need
Depending on where the property is located. You may have to pay other fees such as homeowners’ association fees, property taxes, etc.
Step 14: Conduct a final walkthrough
On the day of closing, you want to make sure that you do a final walkthrough with your agent. This final walkthrough is to make sure that the property is in the same condition as when you viewed it and made your offer. In addition, this is a time to make sure that all repairs that you requested to be carried out were actually done and you are satisfied with the work that was done.
Step 15: Show up for Closing
Today is the day that you close. Your closing attorney and agent will tell you all the paperwork and necessary identification that you will need to close on your property.
You will not sign as many documents. If you were going to finance the property, you would have had to sign many more documents. Therefore, your closing will not take nearly as long.
Step 16: Move into your home!
You have done it. You have bought a house with cash and you have less to worry about. Paying cash means that you will not be paying monthly to have a roof over your head and you may end up saving yourself tens of thousands of dollars in interest payments over the life of the loan.