When it comes time to buy a home, the usual process involves getting preapproved for and obtaining a mortgage, which is how most of us can afford what is one of the biggest purchases we’ll ever make. But for some buyers, paying cash for a house is a viable option — whether they’ve been saving for years, have a lot of equity in their current home and plan to downsize, or happen to come into a windfall. Even with money in the bank, however, a home purchase normally goes through a title company and involves sending the money via wire transfer or cashier’s check; people don’t bring suitcases full of cash to the closing table.
But hypothetically, what if you have real, physical cash filling up your suitcases? What if, for some reason, your aunt decided to bury her life savings in the backyard and left it all to you? Can you buy a house with it? Should you?
The short answer is “not typically,” and except under rare circ*mstances, there are copious reasons why it’s not a good idea. But you can protect yourself and your investment if you really want to pay cash, and other alternatives that provide you with the opportunity to buy while not tying all your money up in one property.
HomeLight looked at various options for paying with cash, situations where paying with physical cash could possibly work, as well as talking to experienced real estate professionals about the ins and outs of buying a house this way. We also investigated other options besides paying with all cash, when it might be better to get a mortgage, and some lending programs that can help you, as a buyer, be able to offer a seller cash even if you still plan to get a mortgage.
Can you buy a house with physical cash?
Technically, you can bring those suitcases full of cash to the closing table and use physical cash to pay for your house. Aside from IRS reporting requirements, there are no laws prohibiting a cash real estate transaction, and if you have a seller who is amenable to receiving physical cash, it can potentially be a quick way to buy. As a buyer, however, paying in physical cash is probably more trouble than it’s really worth.
If you’re purchasing a home that is for sale by owner, you could pay for it with cash, but if you’re paying with actual physical currency, then you’ll need a seller who is willing to count and take possession of the cash at closing. Counting hundreds of thousands of dollars is time-consuming, with a huge margin for error.
Your seller could set up an appointment with their bank and have them run the money through one of their counting devices, which not only counts quickly and accurately, but can also detect counterfeit money. However, if the seller wants to avoid depositing all that cash into their bank account, they might be leery of taking this step.
Whenever an amount exceeding $10,000 is deposited into an account, the bank is required to alert the IRS. In addition, whether or not the money is being deposited, the banking laws require that any cash transaction more than $10,000 be reported, as per FinCEN laws. With that understanding, you can see why making large cash deposits directly into a bank can be cumbersome; that’s why most “cash transactions” are actually conducted through electronic bank-to-bank transfers, also known as “wires.”
If you aren’t using physical currency, there are benefits to paying all cash for your house.
If you and the seller are handling the deal yourselves, with no real estate agents or title companies to pay, you can complete the purchase fairly quickly. You don’t have to worry about getting approved for a mortgage loan, interest rates, mortgage insurance premiums, or years of payments.
The mortgage loan process also can take upwards of 30 days, so if you or your seller is in a hurry, a cash deal can be a huge incentive. Buyers who have cash in hand are very attractive to sellers, as it streamlines the whole process.
Of course, paying cash and doing everything yourself also means you don’t have any real estate experts backing you. As the buyer, you will want to do your own thorough title review (or, in most instances, hire a company to do it for you) to make sure there are no liens or issues with the property, as well as determining that the property’s value is in line with the amount you’re paying. It’s also recommended that you get a home inspection, so you can be aware of any needed repairs or maintenance.
Reasons to avoid paying with physical cash
While paying for a home with cash offers certain advantages over getting a mortgage, there is no reason to give the seller physical money, and there are some distinct downsides.
Washington D.C. real estate agent Hans Wydler says that while he’s definitely had clients pay by cash or accept cash as a seller, a transaction where physical cash actually changes hands is uncommon.
“I don’t think I’ve ever had someone try to pay with real cash, or even with digital currency,” he says. “It’s not a good idea.” Wydler cites issues with counting that amount of cash and concerns over counterfeit money as just a couple of reasons why it’s not a smart move.
In addition to the logistical aspects of figuring out how the money will be counted (and who is going to count it!) and finding a seller who is willing to work with you, there are also legal concerns of making sure the exchange of money is reported to the IRS and that you, as a buyer, are protected.
At the very least, you’ll want to get some kind of receipt from the seller that documents the amount of cash that exchanged hands. Receipts can be easily lost or misplaced, though, and they don’t protect you as well as a wire transfer or cashier’s check from your bank, which can be traced easily.
Not to mention, carrying around that amount of cash isn’t the safest thing to do. Transporting it between yourself and the seller is not only dangerous in regards to possible theft, but you also have to store that money somewhere until it changes hands.
If you’re keeping it in your residence, you need to consider things like disasters that might require you to evacuate your home, such as a fire. Leaving behind a bunch of cash could be an incredibly expensive mistake.
Alternative options to buying with physical cash
While buying a house with physical cash is generally a bad idea, there are alternatives if you have the money to pay for a house outright.
Initiating a wire transfer from your bank account to the seller’s is probably the safest and easiest route. Your bank can set it up for you, the money usually lands in the seller’s account within a few days, depending on your financial institution, and the transaction can be traced through both banks, which provides proof of your payment.
You can also get a cashier’s check from your bank, or some sellers might even consider allowing you to write a personal check, but this is rare. If a seller agrees to accept a personal check, you should make sure you have sufficient funds in your checking account, and will want to let your bank know beforehand that you’re writing a check for such a large amount.
Buying a house with cash can also be a smart way to help your money grow.
“If someone has money sitting in a bank account with no yield, they are probably going to make more money over time by investing it in something like real estate,” says Wydler. He adds that even if someone doesn’t want to deplete their savings by paying for a house with all cash, they could still put a substantial amount down. A larger down payment makes a buyer more attractive to lenders, gets them better interest rates, and can still give you a mortgage interest deduction on your taxes.
So if you’re looking to pay for a house with physical cash, think … and then think again. There are plenty of other options that will still allow you to reap the benefits of offering all cash while also providing you with more financial protections on your investment. You can pay cash for a house with that life savings that your aunt left you, but you don’t need (and shouldn’t use) a suitcase full of money to do it!
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