Tips & AdviceMortgage vs. Cash Offers—Which is Better for Sellers?

Mortgage vs. Cash Offers—Which is Better for Sellers?

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The process of selling a home can be a long and stressful one. Between cleaning and staging the home, showing it off, getting inspections, signing paperwork, and dealing with agents and real estate attorneys galore, there is a lot on your plate as a seller. Not only that, but you also have to focus on moving and dealing with your new home.

As a result, sellers are always looking for ways to simplify or speed up the home selling process to keep it as stress-free as possible. One such way is to entertain cash offers from buyers. While most buyers will require a mortgage to purchase a home, it is becoming more common for people to make cash offers to get ahead of the competition.

This guide is going to go over some of the benefits of cash offers for sellers, who usually makes cash offers, how cash offers compare to mortgages, and what to watch out for when considering a cash offer.

What is a cash offer?

A cash offer is simply when a buyer makes an offer to a seller to purchase their home outright without taking out a loan. This means they will purchase the home with their own money, without having to take out a mortgage or rely on another kind of financing to complete the transaction.

It’s called a cash offer, but typically the money is sent from the buyer to the seller through a wire transfer, though using physical cash definitely isn’t unheard of. The buyer will generally need to prove and verify that the cash is in their possession—whether in a bank account or a duffel bag—at the start of the process, and once the deal is agreed upon, sellers usually receive the money within a couple of days. Cash offers are quickly becoming more popular and common, as there is a lot of competition in the market. Many potential buyers will make cash offers to differentiate their offer from the pack, and get a leg up in any bidding wars that may take place.

Who makes cash offers?

While anyone can technically make a cash offer, it is more common among certain types of buyers. For example, there are many online companies that purchase homes for cash. These “iBuyers” (also known as instant buyers) will use tools to determine how valuable your home is and make you a cash offer based on that. They can often make offers and buy homes incredibly quickly and may purchase more than one at any given time.

Also, investors with some liquidity will also often buy homes with cash. These investors will often attempt to flip homes by buying damaged or imperfect properties at a low cost, fixing them up, and then selling them later on for a profit.

Some people who have a financial windfall can also lead to a cash offer, or if they just received a large inheritance or recently sold their own home and would rather pay cash to avoid paying the interest that comes along with a mortgage.

> Learn more: What is a 1031 Exchange?

No matter where you live, there is likely someone—or a company—nearby who buys homes for cash. If you’re looking for a cash offer on your own home, be discerning with any first-time cash buyers. Those who are experienced and know the process well can ensure everything is done quickly and efficiently, but if someone is a new cash buyer, there is a chance there still may be some contingencies, and everything could go at a snail’s pace.

Why are cash offers better?

There are several benefits that cash offers provide to sellers that a traditional mortgage offer cannot. First of all, cash offers often lead to a much quicker and easier selling and closing process.

A traditional home sale can take months of back and forth between agents, appraisers, inspectors, and lawyers. Because a cash buyer doesn’t need to work with a lender or often even appraise the home (as they often handle that themselves), they can often be done and closed in as little as a week or two.

This saves you a ton of time and stress, which is priceless. Next, cash offers are often less risky than mortgage offers. Mortgage buyers often need to get approved for loans, have their credit and finances scrutinized, and have homes appraised and inspected before the deal is finalized.

Plenty of home sales are terminated or experience delays due to a holdup somewhere along this pipeline. This could be the lender not approving a mortgage, an issue with the appraisal, or countless other things. All of the contingencies that are generally common with a mortgage offer can also lead to issues.

The underwriting process is risky as a whole, and avoiding it altogether can give sellers more confidence and help the process go smoothly without a bunch of hiccups. It’s also a major plus not having to deal with a mountain of paperwork. A cash offer is as simple as verifying the buyer has the cash and making the deal.

Another benefit of cash offers is that you don’t often need to worry about fixing up the home and making major repairs. Many cash buyers are happy to fix up the home after they buy it, as most look to renovate it before reselling. Of course, this isn’t always the case, as each individual buyer is different in terms of what they are comfortable with.

A cash offer means you will likely get less for the home, but it also means you may get to avoid the high costs and headaches that go along with making major repairs in preparation to sell—that’s why so many sellers prefer a cash offer.

> Learn more: Capital Gains on Selling Gifted Property

Drawbacks of cash offers

While a cash offer can be a great choice for home sellers, there are some potential drawbacks to be aware of. Firstly, those who buy homes in cash often want to do it at a lower selling price than if you were selling to a traditional buyer who relies on a home loan. Cash buyers may offer quite a bit below asking.

Many of these cash buyers are running businesses and thus, are in the business of getting the best deal possible. They see your home as an investment in most cases and may not be as flexible or willing to negotiate for long periods of time. These buyers will often have a price in mind, and if you don’t agree, they will simply move onto the next property.

Also, there may be less competition if you are strictly looking for cash offers as a seller. This isn’t to say there aren’t cash buyers, but their presence doesn’t compare to the number of people who want to buy traditionally with a mortgage. Most people interested in buying a home do so with a mortgage, so in some cases, you may not have a lot of options when selling to cash buyers.

Cash offer vs. mortgage

Mortgages are by far the most popular way to buy a home, and this isn’t likely to change. When it comes to cash offer vs. mortgage, which reigns supreme? While cash offers might come in at a lower amount, they are much less of a headache.

You can find a buyer, negotiate, and close the deal much faster with a cash offer, and there is much less stress involved. Once a deal is agreed upon, there is much less that can go wrong and terminate the deal, and most cash buyers won’t back out.

It is a simple, clean, and streamlined way to sell a home quickly without wasting a ton of time and energy. On the other hand, most people find that a mortgage is more realistic than having enough cash to buy a home. Plus, working with a mortgage lender means you have an expert to answer questions every step of the way. 

The flip side of getting a mortgage is paying tens of thousands of dollars in interest over the lifetime of the loan. Not to mention, they certainly increase the amount of overall time it takes to sell a home, and there is a lot more paperwork and other nuisances to deal with.

Both cash offers and mortgages can be great options in the right situation, and there is no right or wrong answer about which is better. For people who can afford it, the ease of a cash offer gives it the edge when it comes to selling and buying homes. While they are not right for everyone, a cash offer can provide many benefits for sellers and drastically simplify the entire process.

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