How to Make a Cash Offer on a House Without the Cash

Cash offers are increasingly common in today’s competitive real estate market. Buyers use them to gain a competitive edge in negotiations and avoid interest on mortgage loans, making them especially useful for first-time homebuyers. Sellers love them because they are faster, more convenient, and more certain than the traditional mortgage process.

As of 2024, all-cash buyers accounted for 32% of all U.S. homebuyers—a significant rise from previous years. But what if you don’t have the cash on hand to make an offer? Luckily, there are realistic ways to structure a competitive offer that act like cash even when you don’t actually have a huge pile of money.

Understanding All-Cash Offers

Cash transactions are rarely made with literal cash. The term is used to describe a direct, one-time transaction through a check or wire transfer that eliminates the need for a mortgage.

There are a number of benefits for buyers, including being able to negotiate a cheaper home price. According to a 2022 research report from the FDIC, mortgaged buyers often pay 11% more for a home than all-cash buyers to compensate for the added complexities of getting financing approved. All-cash buyers can avoid not only the mortgage and thousands of dollars in interest payments, but also the mortgage financing fees related to attorneys, real estate agents, and others. Plus, the transaction is often completed faster than mortgage approvals, which can take between 45-60 days in a high-volume market.

The challenges for all-cash buyers include a possible savings drain that can make it hard to cover the other costs of homeownership, such as property taxes, homeowners insurance, and maintenance. You can’t use the mortgage interest deduction to lower your federal income taxes. And your purchase could limit the diversity of your investment portfolio if the majority of your financial assets are tied up in your home, which is generally not a high-return asset.

When Should You Make Cash Offers?

A cash offer is particularly useful in highly competitive real estate markets. It could also expedite the process if you need to finish a purchase within a certain time frame. 

Depending on your income stability compared to your liquid assets, making a cash offer may be appealing to avoid the loan approval process. Freelancers or self-employed buyers, for example, might find making an upfront all-cash offer more convenient and reliable than financing a mortgage, which hinges on employment verification, monthly income statements, and other documentation that is often more stable for traditionally employed individuals.

How to Buy a House With Cash

Along with considering if an all-cash offer is the right choice for you, it’s important to understand the specific steps involved in buying a house with cash compared to pursuing a mortgage.

1. Find a home: Work with a real estate agent or search on your own to find a home that fits your wants and needs. 
2. Negotiate a price: Agree on a price with the seller according to the home’s value, desired timeline, and other factors. 
3. Demonstrate proof of funds: Provide a bank statement or letter of endorsement to prove your financial situation. 
4. Get an inspection and appraisal: Confirm the home’s condition and value. This step may be skipped due to time or financial considerations, but it ensures full transparency between buyers and sellers. 
5. Draft and sign a purchase agreement: Real estate agents or attorneys can be especially helpful during this contractual step. 
6. Obtain a title report: Ensure the property title is clear of issues and ready for sale. 
7. Place cash in escrow: Deposit the purchase money in a secure escrow account until the transaction is completed. 
8. Complete the transaction: The title is transferred to you, and the cash is transferred to the seller.

How to Make an All-Cash Offer Without Cash: Upfront Underwriting

Similar to all-cash offers, upfront underwriting can expedite the home-buying process and provide sellers with a sense of security regarding the home sale.

The Process

Usually, to obtain a mortgage, a buyer gains pre-approval from their financial institution based on self-reported basic factors like income, assets, credit, and employment. Pre-approval tells these institutions approximately how much money they may receive through a potential mortgage. Then, after solidifying an agreement with a seller, a buyer applies for a mortgage and undergoes a more comprehensive and lengthy underwriting process that financially evaluates the buyer again to solidify the terms and specifics of a mortgage. 

Upfront underwriting abbreviates the process by allowing you to complete the long underwriting process and receive a bank loan offer before searching for a home. Then, when approaching a seller, you already have a concrete mortgage plan to present to them with the confidence of a cash buyer.

Finding a Lender

Upfront underwriting is not a traditional home financing method, and not all financial firms offer this service. A mortgage broker can help you find a firm that provides upfront underwriting with a scheme that works best for your financial needs.

Alternatives to Upfront Underwriting

Aside from upfront underwriting, other private loan options are available to gain the edge of a cash offer in the eyes of a seller while still benefiting from the long-term financial support of a loan.

• Cash-offer companies: Firms like Homeward and Orchard can make a cash offer on your behalf, allowing you to repurchase your home through a mortgage. While convenient, these services typically charge fees, which can make them less attractive.
• Delayed financing: If you have the liquid cash to purchase a home but fear financial instability afterward, delayed financing allows you to take a mortgage out after a cash purchase of a home. 
• Bridge loans: These temporary loans allow you to use your current property’s equity to buy a new property. Although they often come with higher interest rates and are generally only approved for applicants with great credit and debt-to-income ratios, they can be invaluable for people transitioning between properties.
• Home equity lines of credit (HELOC): This revolving line of credit based on the equity of your current home can provide flexibility, but HELOCs usually come with variable interest rates, which may fluctuate over time.

Additional Tips to Beat the Competition in a Seller’s Market

All-cash purchases are primarily a strategy for distinguishing yourself in the real estate market. Here are others:

• Offer above the asking price: As straightforward as this sounds, it will often incentivize a seller to choose you over other potential buyers. 
• Limit contingencies: Removing or reducing inspection and appraisal contingencies can strengthen your offer by shortening the homebuying process for the seller. 
• Be flexible with timing: Agreeing to the seller’s preferred timeline can give you a significant advantage.

The Bottom Line

Cash offers are a powerful tool for buyers in the real estate market because their speed and clarity make them attractive to sellers. However, they aren’t feasible for everyone. Thankfully, options like upfront underwriting and alternative loan plans can make buyers appear as attractive as cash buyers. 

Each strategy has its own costs and risks, so it is crucial to conduct thorough research and seek advice from financial experts to find the best home-buying plan for yourself.