Are you an all-cash buyer? When you pay with cash, you can enjoy a negotiating advantage, a shorter escrow period, and you pay fewer escrow fees.
Here’s a list of closing costs for cash buyers, and an example of the costs for a cash purchase of a $500,000 home.
NOTE: These costs apply to California sales. If you are buying a home outside of California, these numbers probably don’t apply. Check with a local real estate company for your closing costs.
Closing Costs for Cash Buyers: Up-Front Costs
As a cash buyer, you need to submit an Earnest Money Deposit right after you open escrow, and you will probably want to pay for a Home Inspection. You are not required to pay for a Loan Appraisal. In some cases, cash buyers will request an appraisal, and agree to pay no more than the property’s appraised value.
Earnest Money Deposit
As soon as the seller accepts your offer to buy a home, you will need to submit an Earnest Money Deposit (EMD) to the escrow officer. This shows that you are a serious buyer: you have money, and you are committed to buying this house. You specify the EMD amount in your original offer to the seller. These funds are held by the escrow company, and will be used toward your down payment and other closing costs. The EMD may be fully refundable if you change your mind about buying the property. Please check with your real estate agent regarding the refundability of your EMD.
Home Inspection
As soon as you open escrow, you can hire a home inspector to check the property. The home inspection fee depends on the size and type of property, and the inspector you choose. Most home inspections cost between $350-$750. Your home inspector may recommend further inspections, such as for the roof or sewer system. Read more about Home Inspections.
Closing Costs for Cash Buyers: Paid Out of Escrow
All other fees and charges are paid upon close of escrow. About a week prior to close of escrow, you will submit a wire or cashier’s check to the escrow company, who will pay for everything on your behalf. All of these charges are called closing costs.
It’s impossible to know exactly how much you will need to pay ahead of time. The final closing costs aren’t calculated until after the title is transferred to your name. When the escrow company asks you for the wire or check, they add a few hundred dollars’ padding, to ensure they have enough to cover all expenses. As soon as the final costs are calculated, they will send you a check for any overpayment.
Here is a list of common fees, to give you a general idea of closing costs for cash buyers in San Diego County. I have also included an example at the end, for someone paying cash for a $500,000 house.
Closing costs are either non-recurring (one-time), or recurring (on-going).
Non-Recurring Closing Costs for Cash Buyers
Escrow Fees
All buyers have to pay escrow fees. The escrow officer manages all funds in a real estate transaction, and ensures that all outstanding bills are paid. The escrow fee varies from company to company, but averages $450 base plus $2 per $1,000 purchase price. When you buy with a mortgage, you pay additional loan document fees, loan tie-in fees and notary signing fees. Cash buyers avoid those fees. Additional fees for all buyers may include courier, HOA policy transfer, and other services provided over the course of the escrow.
Title Fees
Buyers usually have to purchase a title insurance policy for their lender. Paying cash means no title insurance to buy. The seller pays for your Owner’s Policy (read more about Seller Disclosures), but you won’t need to pay for a Lender Policy. You also don’t need to pay the wire fees or endorsements that are normally charged when your lender funds your purchase. There is one title fee that you still need to pay, which is the County recording fee for the Grant Deed.
Recurring Closing Costs for Cash Buyers
The cost to buy a house often includes recurring charges. Recurring costs will continue after escrow closes.
When you pay cash, the escrow officer needs to account for any applicable HOA fees and property taxes. The HOA usually charges you a pro-rated amount for the month you close escrow, plus the following month’s dues. Property tax calculation depends on the close of escrow date. Read my article about Property Tax Calculation. You can also download my Property Tax Calculation Worksheet.
No Impound Account. Lenders often require an impound account, so they can pay your property taxes and homeowners insurance on your behalf. When you pay cash, there’s no lender to set up an impound account. You will be responsible for paying your annual homeowners insurance policy, and property taxes.
Closing Costs for Cash Buyers: Example
Here is an example of the closing costs for a $500,000 cash purchase.
- Escrow fees: $1650
- Title fee – County recording fee: $50
Total Closing Costs: $1,700 (not including HOA fees and property taxes)
The Bottom Line
Paying cash for a house can mean a faster escrow, and fewer closing costs. Some cash buyers will take out a cash-out refinance later, so they can use some of their equity for other purposes. Every situation is different.
Remember that as a cash buyer, you are responsible for paying your homeowners insurance premiums and property tax bills.
You can print this Cost to Buy a House Worksheet to estimate your buying costs. This worksheet includes the upfront costs, which are paid at the beginning of escrow, and closing costs, which are paid at close of escrow.
If you want to estimate your monthly housing costs, you can also read about The Cost to Own a House.
Questions? Call me at (760) 637-7231, or send me a message.
