Homebuyers

Unlock Big Savings: Why Cash Offers Can Save You More on Your Home

The true cost of taking out a mortgage may surprise many homebuyers.

While taking a loan is often how many buyers can afford homeownership, the interest on a 30-year loan can rival the price of the home itself.

Someone who put down 20% on the median-priced home of $399,933 at a 6.44% mortgage rate would pay $403,535 in interest over the life of 30-year, fixed-rate mortgage. That's more than the price of a home—just for borrowing the money.

And if you put down only 10%, the interest skyrockets to $453,977.

(The list price is as of Sept. 30 from Zillow. The mortgage rate is the average weekly rate as of Oct. 17, according to Freddie Mac.)

But here's an opportunity many don't consider: U.S. homeowners with mortgages built up $17.6 trillion in home equity by the second quarter of 2024, according to CoreLogic.

For many, tapping into this equity or their other financial assets to downsize or buy a home in cash isn't just possible—it's a smart way to save.

By paying cash, you avoid the costs of interest and may gain negotiating power.

"A cash offer not only speeds up closing but often gives you leverage to negotiate a lower price," said Phil Chenier, a loan officer for New American Funding at the Long Beach, CA branch. "Sellers love the certainty and fewer contingencies."

What if you don’t have a pile of cash sitting around?

If you're a first-time homebuyer without a lot of equity built up, or you didn’t exactly 'make it big' in the stock market, an all-cash offer might seem out of reach.

However, a lender may be able to help you put in an all-cash offer. This allows you to put in an cash-backed offer without having all the money upfront.

That can allow you to still enjoy the benefits of a fast closing, have more negotiating power—and potentially save on the purchase price of the home.

Once you move in, you may be able to get traditional financing with a mortgage, by buying back the home from the company that bought it for you with cash.

Cash buyers may be able to purchase homes for less than those with mortgages

Cash buyers may also be able to score discounts on homes or win bidding wars even if they don’t have the highest offers.

Sellers tend to favor buyers who come to the table with cash because there's less risk involved. They know the buyers have the financing for the offer to go through. This makes sellers more flexible on price, often willing to negotiate down to secure a quick and easy closing.

With a cash offer, you're positioned as a strong, reliable buyer, which can shift the entire negotiation in your favor. This advantage can translate into a better deal.

Speed wins: Closing faster with a cash offer

One of the biggest advantages of making a cash offer is speed. Mortgage-backed offers can take weeks longer to close, largely due to the need for appraisals, loan approvals, and other lender-related contingencies.

"A cash offer will usually result in a much stronger negotiating posture for a buyer. Because there is no loan needed, there's no appraisal or loan approval that can slow down escrow," said Chenier.

Cash offers may cut the closing time in half. With a mortgage, the escrow process can take 30 to 45 days, but cash buyers can close in as little as 15 days or sooner.

"Typically, the need for a loan can expand an escrow time by weeks. A cash offer tends to be a smoother and more rapid closing, many times cutting the escrow period in half," said Chenier.

And the quicker the close, the more motivated sellers are to accept your offer.

"They feel there will be fewer obstacles to closing quickly," said Chenier.

Special incentives: Builders love cash offers

Cash offers aren't just appealing to individual sellers—they're also highly attractive to builders.

Builders with standing inventory are often eager to sell quickly, and cash buyers provide the certainty they crave.

"Builders can offer 'fast closing' incentives like discounts on the sales price, flooring and finish allowances, or even landscaping," said Chenier.

You might score a price reduction or get upgrades that financed buyers miss out on, simply because you can present a faster and more reliable close with an all-cash offer.

And with all-cash backing services, you don't need to be sitting on a mountain of money to take advantage of these benefits.

Phil Chenier NMLS # 359384