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How To Make a Cash Offer on a House — Even When You Don't Have Cash

Knowing how to make a cash offer on a house could be the difference between winning a bid and starting over. Here are your options.

February 2, 2022
February 2, 2022
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Making a cash offer on a house can go a long way toward getting a seller’s attention. But most homebuyers can’t afford to pay cash for a house, especially as home prices increase.

Fortunately, there are ways to compete with cash offers – even if you don’t have cash.

What's in this Article?

What is a cash offer?

Why are cash offers so popular today?

3 ways to compete with a cash offer

The downsides of paying with cash

Frequently asked questions

What is a cash offer?

A cash offer involves a homebuyer paying entirely in liquid cash funds for a home. In other words, the buyer does not need a mortgage loan to close the deal.

“A cash offer is about as simple as it gets when buying or selling a house,” says Jordan Fulmer, owner of Momentum Property Solutions, a real estate company in Huntsville, Alabama, that purchases homes via cash. “Instead of a lender funding the purchase, the money for the transaction comes straight from the buyer’s bank account.”

That means that unlike a buyer who needs a mortgage loan to complete the purchase, there is no financing contingency attached to the offer.

“Cash buyers need to commit an earnest money deposit to make the seller confident that they will purchase the house with no loan requirement,” says Jeff Cody, managing partner of NextBridge Home Solutions, which also makes all-cash home purchases. “If they cannot close, a cash buyer risks losing their earnest money deposit.”

Actual dollar bills are not usually exchanged during a cash offer.

“Instead, a traditional cash offer is typically exchanged via cashier’s check or wire transfer,” explains Ryan Fitzgerald, a real estate agent and owner of UpHomes.

Why are cash offers so popular today?

Cash offers have become increasingly popular in recent years as the housing market has heated up. A cash offer is very attractive to sellers, as they don’t have to worry about the buyer getting approved for a mortgage. With increased competition due to buyers vying for a limited number of properties, a cash offer can help you stand out. Indeed, in markets where competition is especially fierce, a cash offer may seem like a necessity.

“Cash offers are more in demand today because, when a seller has multiple buyers interested, they can choose the offer that has less risk for them, which is often a cash offer,” adds Cody.

“Cash offers are more in demand today because, when a seller has multiple buyers interested, they can choose the offer that has less risk for them, which is often a cash offer.”

Jeff Cody, managing partner of NextBridge Home Solutions

Cash offers tend to close more quickly than deals with financing because the buyer doesn’t have to wait for underwriting approval on a loan.

“A cash purchase can be closed in as little as a week,” Fulmer says.

Sellers have better peace of mind that a cash offer will not fall through at the last minute, too.

“The loan approval process can sometimes take 45 to 60 days, and a seller often doesn’t want to wait that long to close on the sale,” notes Chicago-based attorney and licensed real estate agent Mario Iveljic.

Why pay cash for a home?

Cash offers have advantages for buyers, too. You don’t have to worry about making monthly payments when you purchase entirely with cash. You also aren’t on the hook for interest that will accrue on a mortgage loan, which can add up to tens of thousands of dollars over the life of the loan.

“Additionally, the closing costs on a cash deal are usually much cheaper since the expenses associated with loan origination and a home appraisal will not be incurred,” Fulmer says.

But the best benefit of using cash is that your offer will appear much more attractive to a seller, allowing you to outmaneuver rivals competing for the same home.

“If a seller is motivated enough, they may even take a lower amount with a cash offer because there is less risk to them of the deal falling through,” says Cody. “I just did this on a home flip in Cape Coral, Florida. I paid $500,000 for a house listed at $530,000 that should sell for $700,000 after I rehab it.”

“If a seller is motivated enough, they may even take a lower amount with a cash offer because there is less risk to them of the deal falling through.”

Jeff Cody, managing partner of NextBridge Home Solutions

It’s important to note that your seller will want verification that you have the cash available for the purchase. You may also need to put down earnest money, which is essentially a good faith commitment to buying the home.

If your sale contract stipulates that the seller gets to keep the earnest money if you cancel the sale, you could lose whatever you put down if you are unable to secure the cash needed before you close.

“Good candidates [for making a cash offer] are high net worth individuals, those who have saved up cash specifically for this home purchase, or investors who have multiple private money lenders or lines of credit available to them that enable them to make cash offers,” Cody says.

3 ways to compete with a cash offer

For all their benefits, cash offers aren’t an option for many homebuyers. But that doesn’t mean you can’t compete.

In fact, there are a number of ways to make a strong, attractive offer even if you don’t have cash on hand.

1. Get an underwritten preapproval

A preapproval* that’s been through underwriting can give your seller’s agent, and the seller themselves, confidence that you will be able to purchase the home.

A solid preapproval “shows the seller there is less risk to them of the deal falling through,” says Cody. And although cash is attractive, cash buyers still need to prove to the seller that they will have the money to close.

If a cash offer on a house seems tenuous, a preapproved buyer whose finances have already been vetted can win out, particularly if the lender has a reputation for strong preapprovals and on-time closings.

Fairway offers a Fairway Advantage Pre-Approval** that offers exactly those benefits. When you apply for the Advantage Pre-Approval, Fairway reviews all of your financial documents to verify that you are an eligible borrower. That can give your real estate agent, and your seller’s agent, confidence in your offer.

2. Make an offer with a cash guarantee

A seller’s biggest fear is that a sale will not close and that they will have to relist their home. By that time, they may have missed out on other great offers, and their own moving timeline may be dependent on the sale of their home.

Plus, the longer a house is on the market, the less desirable it seems to homebuyers. Even if the home becomes available again through no fault of the seller, buyers may assume it has serious flaws. The seller may not be able to get as high an offer once the house comes back on the market, even if it’s in good condition.

So, anything you can do to assure the seller that the sale will go through can strengthen your case. Fairway recently introduced a Cash Guarantee that allows you to do just that.

The Fairway Cash Guarantee promises that if the buyer’s financing falls through, Fairway will purchase the home or give the seller $10,000 in compensation.

Here’s how the Fairway Cash Guarantee works:

  • The homebuyer must have a Fairway Advantage Pre-Approval
  • If the sale is canceled due to a qualifying financing issue, Fairway will purchase the home for either the sale price or the appraised value (whichever is less) or give the seller $10,000 if they decided to relist it
  • Available in all 50 states

Qualifying financing issues include:

  • The borrower or co-borrower loses their job and no longer has the qualifying income needed for the loan
  • The borrower or co-borrower passes away before closing
  • The borrower or co-borrower no longer meets the credit requirements to qualify for the loan
  • The buyer and seller agree in a purchase contract that buyer will cover the difference between the sale price and the appraised value, the home appraises for less than the sale price, and the borrower cannot, or chooses not to, pay the difference between the sale price and the appraised value

The Fairway Cash Guarantee does not apply if the buyer cancels the sale for any other reason, such as concerns over the inspection report or a change of heart about buying the house.

Making an offer with the Fairway Cash Guarantee provides sellers reassurance. If they’re in a hurry to sell the home, they know that even if the buyer’s financing falls through, the deal will still close. But even if they choose to list the home again, they’ll still receive $10,000 to compensate them for the time the home was off the market.

3. Work with a company that will pay cash for you

Companies such as Ribbon help homebuyers compete with cash as well.

Ribbon offers homebuyers two options through its Ribbon Boost and Ribbon Reserve programs: They will provide a backup guarantee to your offer with cash so that you can close even if your loan falls through. Or they will pay cash on your behalf.

Under the latter scenario, depending on your financial qualifications, Ribbon promises to buy the house you want, rent it back to you for up to six months, and then allow you to purchase it from them using a mortgage loan. Buyers who are interested in using Ribbon should carefully review Ribbon’s website to learn more about how the program works and the various fees associated with the program.

As of publication, Ribbon is available in some markets in 11 states:

  • North Carolina
  • South Carolina
  • Tennessee
  • Texas
  • Florida
  • Georgia
  • Alabama
  • Missouri
  • Indiana
  • Oklahoma
  • Virginia

The downsides of paying with cash

A cash offer on a house can make you competitive. But there are downsides to paying with cash when it comes out of your savings.

The biggest downside is that you might drain your savings or other financial resources in the process.

“You will want to make sure you have other funds left over to pull from after paying for the home so that you don’t put yourself financially at risk,” advises Fitzgerald.

As mentioned, you may also lose your earnest money deposit if you cannot close your cash deal.

“Another con is that you won’t be able to take advantage of the mortgage interest deduction on your federal income taxes, as you would if you had financed the purchase with a mortgage loan,” Fitzgerald continues.

Additionally, the cash you devote to a home purchase may yield a greater rate of return if you put some or all of those funds instead into various investments, including stocks and mutual funds. That’s why it’s a good idea to consult with your accountant or certified financial planner on the best use of your money.

Making an offer with a cash guarantee, or working with a company that will pay cash for you and then let you finance the purchase, can give you the best of both worlds. You get to make a cash offer without having to come up with all of the money upfront.

How to make a cash offer on a house FAQs

How do you make an offer with cash? You can make a cash offer by submitting a purchase agreement that indicates you will buy the home with cash rather than obtaining a mortgage. You will likely need to submit proof of funds with your cash offer, such as bank statements and other financial documents showing that you have sufficient money available to buy the house.

Can a cash offer on a house fall through? Yes, a cash offer can collapse if you cannot furnish sufficient proof of funds or come up with the money needed to close the deal. Or, the homebuyer can cancel the deal within the agreed-upon due diligence timeframe if they change their mind due to concerns over an inspection report or other issues with the house. Cash deals can fall through if the seller cannot provide the title to the home, there are encroachments on the property that the buyer doesn’t want to accept and which cannot be insured or rectified prior to closing, or if there is ongoing litigation related to the property.

Do cash buyers offer less? A cash buyer may be able to offer and pay less on a home purchase if the seller is willing to accept their price. The seller may be more inclined to accept a lower amount knowing if they don’t have to wait for a lender to approve a loan and the deal may close quicker because of that.

The bottom line

A cash offer can help you win the house you want. But there are alternatives to cash offers that enable you to compete with them. A strong preapproval, cash guarantee, or a third-party purchase are all ways that you can get in front of sellers without needing to find hundreds of thousands of dollars on your own.

And if you do pay cash from your own funds, be sure you’re seeing the whole picture.

“Purchasing a home is a big investment,” Iveljic says. “You need to be certain that you will have sufficient cash to purchase the home and pay for associated closing costs, moving expenses, furniture bills, real estate taxes, and repairs and upkeep after you move in.”

*Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal. **Fairway Advantage pre-approval is based on a full review of the borrower’s creditworthiness and is contingent upon there being no material changes in the borrower’s financial condition or creditworthiness at the time of final loan approval. Final loan approval is subject to the following conditions: (1) borrower has identified a suitable property, and a valid appraisal supports the proposed loan amount; (2) a valid title insurance binder has been issued; and (3) borrower selects a mortgage program and locks in an interest rate that will support the pre-approved monthly payment amount. Loan must close before the expiration date provided in the pre-approval. Offer not available on USDA, bond, or DPA programs. Sale of home proceeds contingency not allowed. Gifts not deposited are not allowed. Please note that submitting verifying documentation is not a requirement to receive an estimate of closing costs associated with a mortgage loan. This article does not constitute tax advice. Please consult a tax advisor regarding your specific situation.

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