Cash vs. Mortgage Buyers: Who Should Sellers Favor?

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If you're selling your home, should you take a cash offer or a mortgage buyer?

When selling a home, it’s easy to want to accept any cash offer. These offers can be hassle-free housing transactions where the seller easily walks away with cash in hand. Cash transactions can provide quick and convenient returns on your property investment, but they shouldn’t always be favored over mortgage buyers.

Advantages of Cash Buyers

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The biggest reason sellers should find cash buyers attractive is that they aren’t going to have any trouble closing. The loan doesn’t exist. Therefore, the sale is not dependent on the approval process. This is true almost all of the time. The exception is in states that allow a seller to back out of the purchase within a certain time frame. The buyer typically loses the earnest money submitted with the offer, but they do get to back out. All-in-all, the risk of the buyer backing out isn’t much different than with mortgage purchasers. As a result, cash buyers are more likely to close without any major hurdles. 

Because the cash buyer doesn’t need to go through the approval process, the home sale transaction happens much faster. The entire process is more streamlined because it isn’t dependent on loan requirements such as inspections and appraisals. 

Of course, a sale agreement between a cash buyer and seller can have contingencies. However, there are no third-party contingencies. This may include a new roof or valuation issues that cost the seller money. Contingencies between the cash buyer and seller are much more negotiable. 

When a house is financed, it must be worth the amount offered for it. If an appraisal doesn’t value the home for as much money as the seller is offering, the loan won’t be approved. This is a big problem when the market is overvaluing a home. As a result, it can result in loan denials or increased contingencies. This definitely makes the sale take longer. 

Finally, there are no loan fees in cash transactions that the seller would normally pay. This makes the overall transaction cheaper for both parties. 

Advantages of Cash Buyers to the Home Seller

  • Closing certainty
  • Speed
  • No outside contingencies
  • Reduced issues with appraisals
  • Lower selling costs

Advantages of Mortgage Buyers

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Because more people can afford a home with a mortgage, mortgage buyers create more competition. Since the pool of buyers is bigger, so are the offers. Home sellers make an average of 11% more off their home when they accept mortgage offers unless a cash buyer is willing to increase their offer. This is more common when market values are low, and it makes sense for cash buyers to offer more. 

Another advantage of mortgage buyers is that the transaction is slower. This may not seem like an advantage. However, it is beneficial for people who are juggling the transaction with a new home purchase and subsequent move. 

Finally, a big advantage of mortgage buyers is that they are locked in with their offer. That means the seller gets to keep the earnest money if they change their mind. This may be available in cash offers as well, depending on the situation. 

Mortgage homebuyers are not without advantages. However, the advantages are more situational. The biggest advantages tend to be the following: 

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Advantages of Mortgage Buyers to the Home Seller

  • Higher offers
  • Flexibility in timeline
  • Earnest money

Disadvantages of Cash Buyers

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The disadvantages of cash buyers are mostly lower offers. Cash offers are often given by housing investors or house flippers looking to make money on the purchase of your home. This means they might make low-ball offers that could be enticing if the seller is looking for a quick transaction. The pool of buyers is smaller when they’re paying with cash, which limits competition. 

Cash buyers also tend to have the upper hand when it comes to making their demands about the property. If they find things wrong with the property during an inspection, expect their offer to plummet. 

This is not always the case. Some cash offers are site-unseen and occur without a hitch. However, there are disadvantages to some cash homebuying transactions. 

Potential Downfalls of Cash Buyers

  • Lower offers
  • Pool of buyers is smaller
  • Upper hand in negotiations

Disadvantages of Mortgage Buyers

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When a homebuyer makes an offer, it is subject to the demands of the lending institution. This might mean that it has to meet appraisal or pass an inspection. Sellers might have to make improvements prior to closing, which takes time and money. 

There’s also the risk that a loan will not go through. In this case, the potential buyer is not punished. They don’t give the seller earnest money. They simply walk away, and the seller is left with nothing.

Because financing requires an inspection and appraisal, it takes a longer amount of time. This is good for some situations, but it’s more frequently a negative aspect for the seller. 

There’s already a lot of paperwork in a cash home sale. However, that amount of paperwork is multiplied when the house is financed. Overall, the mortgage buyer takes a long time, but the seller may get more money for their home as a result. 

Potential Downfalls of Mortgage Buyers

  • Contingencies for financing
  • Financing failing
  • Longer timeline
  • Paperwork
  • Uncertainty
A inforgraphic about the pros and cons of both cash buyers and mortgage buyers.

FHA Buyers

A retired couple buying a home with a real estate agent.

Federal Housing Administration (FHA) loans are often called first-time homeowner loans because they have lower credit and down payment requirements. This means that the buying pool is increased. There’s less of a chance that the buyer will be unable to afford the home because they may not have to pay a down payment or closing costs. There’s more paperwork and strict inspection and appraisal standards. However, GHA loans may get higher offers, especially in lower-income areas. 

Who Should Sellers Favor?

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Sellers have to evaluate their specific situation when deciding to favor cash or mortgage buyers. The decision should be based on the amount of the offer and the hopes of the seller. Most home sellers gravitate toward cash offers because of the simplicity. However, there are definite benefits to considering mortgage buyers when the offer is much more than you would get from a cash buyer.

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