If you are lucky enough to pay cash for a home you want to buy, you may think that you just hand over the exact amount of the purchase price and you own a home. While this would be great, it’s not the case. Even though you don’t have a mortgage, there are still closing costs you’ll need to cover.
Below we help you understand who pays the closing costs in a cash sale as well as how you can get help with them if you’ve run out of cash.
The Closing Costs Cash Buyers Pay
First, you should know that you’ll save significantly on closing fees when you pay cash. Eliminating the lender means you can avoid fees, such as:
- Document Preparation
- Origination fee
- Discount points
- Prepaid interest
- Credit report fees
Aside from the lender fees, though, you’ll pay plenty of other fees to third parties, including:
- Title fees
- Appraisal fees
- Inspection fees
- Escrow fee
- Attorney fees
- Survey fees
- Notary fees
You may wonder why you would pay closing fees if you pay cash for your home. The only thing you sidestep when you pay cash is using a lender to finance the purchase. The other fees pertain to third parties that provide valuable and sometimes legal steps to help you purchase the home.
Below we look at each fee individually.
Paying title fees is optional as a cash buyer, but we feel it’s important. You can pay for a title search. This enlists the service of a title examiner that will determine if the current seller owns the home without any liens on it (with the exception of a current mortgage). This can give you peace of mind knowing that no one else can come stake a claim in the home down the road. If there are liens on the property, you can discuss them with the seller and require clear title before you will go through with the purchase.
You may also purchase title insurance. This policy covers you, not a lender. While if you did get a mortgage, you would have to purchase a lender’s policy, you save on that as a cash buyer. The owner’s policy protects your investment should a claim come up down the road that occurred before you owned the property. The insurance protects your financial interest in the property and helps cover the legal fees that you may incur.
You don’t have to pay for an appraisal when paying cash for a home, but it’s not a bad idea. An appraiser can tell you if you are paying a fair price for the home. If the appraisal comes back with a lower value than you offered to pay, you may want to rescind your offer or renegotiate with the seller.
An inspection also isn’t required, but you may want to consider it. The inspector goes around the house and reports anything that he or she sees wrong with it. This gives you a better idea of the condition of the home. You can then decide (if you put an inspection contingency on the contract) whether you want to buy the home as-is, renegotiate the contract, or walk away from the sale.
Even though you are using your own money to pay for the home, you’ll still need a neutral party to handle the finance part of it. Most sellers want an earnest money deposit, which is money you give to a neutral third party (escrow officer) to hold onto until you close on the sale. The escrow officer will also distribute the remaining funds when you close on the home to the appropriate parties. Each escrow officer has their own fees; call around to find a reputable escrow officer that has reasonable fees.
We recommend always using a real estate attorney to represent you in the sale. The real estate attorney will make sure that all I’s are dotted and T’s are crossed, so to speak. Without a loan officer guiding you along the way, you need someone with experience in the industry that can point out any red flags as well as make sure that all parties’ best interests are covered.
You may also want to consider a survey. While it’s not required and it is a bit expensive, it lets you know the property lines. If the land is large or there are concerns about the property lines even on a small property, it may be well worth the cost.
As you probably guessed, purchasing a home is a large expense. There are a lot of legal issues that could come up which is why a notary is necessary. The notary is your ‘professional witness’ for the transaction. It’s not a large expense, but one you should know about nonetheless.
Getting Around the Closing Fees
So as a cash buyer, is there any way to get around the closing fees? Technically, they are your responsibility, but you can negotiate them with the seller. In some cases, sellers will help with the closing fees, especially when they know there isn’t a lender involved and you could close on the purchase faster. If your seller does agree to pay the closing costs, or at least some of them, make sure you get it in writing to make it official.
As a cash buyer, you are the answer to ‘who pays closing costs in a cash sale?’. Figuring out your estimated bottom line before making an offer can help you stay within your budget. Talk with your local title company, chosen attorney, and escrow agent, and inspector to determine how much your closing costs as a cash buyer may be.