In real estate, cash is king.
Cash buyers currently represent 32% of all purchasers, marking the highest proportion observed in the past decade as of the latest 2024 report. These all cash purchases break up into 3 categories of home buyers: Primary residence buyers, vacation buyers, and investors or house-buying companies.
If you’ve ever bought a house with a mortgage, you know closing fees and expenses can add up fast. If you plan on paying cash for a home this year, you may be wondering what closing costs you will have to pay, if any.
If you are wondering whether there are closing costs with cash offers and how much they are, this article is for you.
The competitive real estate market has sparked an increase in cash deals over the last couple of years, and trends show cash offers aren’t going to slow down any time soon.
Keep reading to learn more about cash offers and closing costs.
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What are the benefits of a cash offer?
Residential mortgage debt in the U.S. totaled $12.14 trillion as of the most recent quarter looking into 2024, according to the Federal Reserve Bank of New York.
For those who can afford to buy a house with cash, there are multiple benefits to the buyer and the seller in the transaction. Cash deals are generally less risky, less complicated, have fewer closing costs, and can often get to the closing table faster.
Benefits to the buyer
Buyers benefit from buying real estate with cash. First, buyers don’t have to worry about getting financing approved by a lender, meaning they can buy regardless of their credit score, debt-to-income ratio, or other factors required by lenders.
In a bidding war, cash offers are attractive to sellers. If you find yourself in competition with other buyers for a house, offering cash will make your offer stand out and will be more likely to be accepted by the seller.
Cash buyers also avoid paying lender fees, resulting in much lower closing costs overall.
The benefits don’t stop at the closing table. Homeowners who paid cash for their homes do not have to pay interest or private mortgage insurance. Plus, having no house payment means more disposable income for other things like investing in more real estate!
Benefits to the seller
Sellers also benefit from cash offers. If a buyer can prove they have the funds to pay cash for their house, the seller doesn’t have to worry about the buyer’s financing getting delayed or falling through.
Cash deals also tend to close faster. If the seller needs to move within a short timeframe, a cash offer could be very attractive because they are less risky and more likely to close on time or early. Overall, the sale of a house with cash goes much more smoothly and mitigates risk to the seller.
Are there any drawbacks of a cash offer?
While the benefits of a cash offer are plentiful, there are a few drawbacks to a real estate cash offer.
You’ve heard of “good debt” and “bad debt.” Creditors view mortgages as “good debt” because real estate increases in value over time.
Having a mortgage can even save you money. Mortgage holders are eligible for some tax deductions. For instance, the mortgage interest deduction allows homeowners to subtract the amount they paid in mortgage interest from their taxable income.
Owning your home in full could mean having less liquid cash available to diversify your portfolio by investing in other assets. It also means less money on hand for additional costs associated with home ownership like property taxes, homeowners insurance, and HOA dues.
Finally, if, for unforeseen reasons, you need to sell your home soon after buying it, you may be forced to sell it at a loss. In that instance, you would probably rather not have all your savings tied up in your house.
In short, if buying a house with cash means draining your savings, it might not be the best option for you. You are in a much better position to buy a property with cash if you will still have a healthy savings account afterward.
What are closing costs?
Closing costs are fees you pay at the end of a real estate transaction. Buyers and sellers both pay closing costs, but buyers usually have to pay more. Closing costs are typically made up of processing fees paid to the lender, escrow funds, title company fees, government fees, and more. If you’re buying a house with a mortgage, you can expect your closing costs to equal approximately 3-6% of the loan amount.
As a cash buyer, you do not have to pay the following closing costs:
- Appraisal fee
- Credit report fee
- Loan origination fee
- Loan discount points
- Application fee
- Underwriting fee
Those fees add up fast! If you can bypass all those fees with a cash offer, you will save thousands of dollars at the closing table.
Are there closing costs with a cash offer?
The short answer is yes. Even though cash buyers skip the closing costs listed above, there are still plenty of other fees to pay at closing for the buyer and the seller. Most fees will be associated with title work, transfer fees, taxes, and insurance.
Closing costs for the buyer on a cash deal
In general, buyers pay more closing costs than sellers. Even though closing costs associated with the loan tend to make up a significant portion, cash buyers shouldn’t dismiss other fees due so they don’t get a big surprise on closing day! Here are the expenses cash buyers can expect to pay at closing.
Title search
Your title company will perform a title search on the property to ensure there are no issues with the title. They will charge a fee for the title search that can range anywhere from $75 to $500.
Owner’s title insurance
An owner’s title insurance policy protects your ownership of the property. It will save you in situations including the following:
- An unauthorized seller forged the deed
- An unknown but rightful heir wants to claim ownership of the property
- Conflict arises over a will from a deceased owner
These issues are rare, but a one-time charge at closing will safeguard you should problems arise that an exhaustive title search would not reveal. It is usually .5% to 1% of the total sales price.
Attorney fees
Some states require that an attorney review the title and/or be present at closing. Attorney fees vary significantly from one state to another, so we recommend speaking to an escrow officer at a title company near you to learn more.
Transfer taxes
States and/or local jurisdictions require a one-time tax paid upon the transfer of title from the previous owner to the new owner. Transfer taxes are calculated based on the price of the property. Percentages vary by state, so look into your state’s transfer tax rate before you buy.
Courier fees
Certain documents cannot be electronically transported for closing. If any of your closing documents need to be couriered, or transported, you could have to pay courier fees. Courier fees are usually around $20.
Escrow fees
The title company charges escrow fees for handling title transfers, recording the deed, distributing funds, and handling other paperwork. The escrow fee is usually 1% to 2% of the purchase price but can vary. Some title companies charge a flat fee.
Property taxes
Some states charge property taxes in advance. In instances where the seller prepaid property taxes, the buyer will have to reimburse the seller for a prorated portion of the taxes upon the transfer of property.
Homeowners insurance
Homebuyers often must pay the entire annual premium for their homeowner’s insurance at closing. The cost of your homeowner’s insurance varies based on your coverage, location, home value, size of your home, and risk of natural disasters, to name a few!
Homeowners association transfer fee
If you’re buying a house in a neighborhood with a homeowners association (HOA), you might have to pay a transfer fee to the HOA. The transfer fee is separate from your annual HOA dues and pays the HOA board for paperwork and documents involved with the transfer of ownership.
Closing costs for the seller on a cash deal
The closing costs for the seller do not change much for cash offers versus non-cash offers.
The highest cost to the seller is usually the realtor commission unless they sell their house themselves. Sellers typically pay 6% of the total sale price to their listing agent, who then splits the commission with the buyer agent. However, due to upcoming changes due to a 2024 NAR legal settlement this could shrink by 2% or more due to commission changes. This is how real estate agents get paid — the buyer typically does not pay their agent today but will have to in the very near future.
In addition to agent commission, sellers pay:
- Transfer tax
- Title insurance
- Escrow fees
- Closing fees
- Attorney fees
- Prorated property taxes
- HOA fees
- Mortgage payoff and prepayment fees
In total, sellers pay closing costs to equal roughly 8-10% of the sale price if they do not pay any of the buyer’s closing costs. Sellers pay more in closing costs than buyers, but their fees and taxes are deducted from the sale of the house so they rarely need to bring any money to closing.
How much are closing costs for a cash offer?
We mentioned earlier that buying a house with a mortgage means the closing costs will be about 3-6% of the loan amount on average.
When it comes to buying with cash, 3% is a good rule of thumb when estimating your closing costs. If you purchase a $100,000 house with cash, your settlement charges could run upwards of $3,000, meaning you will need to bring $103,000 cash to the closing table.
Keep in mind that closing costs vary. Look into your state laws and research title companies in your area to get a clearer picture of what your closing costs could be with a cash offer.
If you’re thinking about buying or selling a home, there are many benefits to a cash offer. The entire real estate transaction will have fewer hiccups and less risk, and it will move faster.
As a buyer, offering cash means your offer stands out in a bidding war, you don’t have to contend with financing rules and regulations, and you will pay significantly less at the closing table.
Receive a cash offer from an iBuyer
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Selling through iBuying streamlines the home selling process. The process is even more straightforward when you sell to an iBuyer company.
iBuyer companies like Zillow Offers, Opendoor, and RedfinNow buy homes online with cash. As the seller, you will receive strong cash offers with no showings or repairs. iBuyers also tend to offer more than We Buy Houses companies.
To get started, submit your contact information and details about your home on iBuyer.com. Our algorithm uses intelligent data to provide a precise estimate of your home’s value. iBuyers will be able to see your property, and you’ll be able to view potential buyers on the site as well.
iBuyers interested in your property may reach out to you with questions about home upgrades or repairs before they submit their cash offer. Still, you can usually expect cash offers to start rolling in within 24-48 hours, if not sooner.
Remember, not all iBuyers are the same – some are not legitimate and prey on homeowners. At iBuyer.com, we match homeowners like you with trustworthy, verified iBuyer companies.
Sell your house for cash on iBuyer.com
We hope we have answered your questions.
For buyers, closing costs could be cut in half or more when they buy with cash.
For sellers, a cash offer means the sale of your home could go more smoothly.
If you’re thinking about selling your house, consider selling to an iBuyer. We streamline the home selling process so you can sell your house fast, for top dollar, and get on with your life.
