Why is a Cash Sale a Better Option than a Mortgage?

Cash sales are often more attractive for sellers than mortgages due to their speed and ease of completion. Learn why cash sales are better than mortgages and how they can help you win bidding wars.

Why is a Cash Sale a Better Option than a Mortgage?

Purchasing a home with cash eliminates the need to pay interest on the loan and closing costs. According to Robert Semrad, JD, senior partner and founder of DebtStoppers Bankruptcy Law Firm, lenders don't charge mortgage origination fees, appraisal fees, or other fees to evaluate buyers. A cash offer is an offer to buy the property without a mortgage loan or other type of financing. These offers are often more attractive to sellers, as they mean there is no risk of falling funding from the buyer and generally a faster closing time. A cash offer versus a mortgage for a seller can give them more confidence in the buyer.

With a cash offer, there's no chance that funding will fail. This ensures that the operation is carried out as planned. Sellers don't have to interact with the buyer's mortgage lender, but they do have to comply with the lender's demands if they want to close a sale with a particular buyer. If you receive a cash offer from a buyer who is more or less a repeat customer, it may be easier than if you are working with a first-time cash buyer. Negotiating a cash offer for a home with contingencies is more flexible and feasible than with a mortgage.

Because of the reasons sellers prefer cash offers, it makes sense for buyers to want to pay cash if they have the means, especially in the seller's market. Cash-paying buyers also avoid many of the costs associated with closing a loan, not to mention years of mortgage interest payments. Mortgage buyers have more power in real estate transactions, since meeting a property's lender's requirements can make or break a sale. If you don't want to get caught up in a bidding war, a cash offer can be tempting enough to convince the seller to accept your offer as-is without increasing it to match other superior offers. If you're selling your home (or even just considering doing so), a cash offer can sound quite tempting. Even if you don't have enough liquid assets or feel overwhelmed by a cash offer, you can still be an attractive homebuyer capable of winning a bidding war. While you're more likely to continue funneling money into your property when negotiating a mortgage offer, cash offers provide a greater opportunity to sell your property as-is.

By contrast, buying a home with 100% cash essentially ensures a rate of return equivalent to any current mortgage rate you might have contracted. In competitive markets where sellers have many interested buyers, the speed and ease of a cash offer makes it more attractive than traditional homebuyers. This type of financing helps streamline the closing process and makes you as competitive as a cash buyer who is ready to move in quickly and who knows they can afford to buy the home. Because you don't have to deal with lenders and all of their rules are required to get a loan, sellers often save time and money when they have a cash buyer who is less likely to request appraisals or home inspections (although they should request them). You may be in a multi-offer situation and not sure which way to go, so make sure you have enough cash to cover your expenses for at least several months; if your financial situation changes, you may need access to funds.