Yes, You Can Buy a Home With Cash and Then Get a Mortgage

Photo of stack of money next to tiny model home and notepad and pen

For almost any homebuyer – and especially a first-time homebuyer – coming up with enough cash to finance a home purchase outright can seem like an impossible task, especially for homes that may cost upwards of $500,000. However, coming up with an all-cash offer can help you to land the home of your dreams in a competitive real estate market.

If there are several bids on a home, the all-cash offer will almost always be the most attractive offer on the table. From the perspective of the seller, there are several big advantages to these all-cash offers. The first, and most important, reason is that it removes some of the uncertainty around the ability to buy the home. Other bidders will have to get a mortgage to finance the house purchase, and that process could either be derailed or delayed due to unforeseen circumstances. There will always be questions about appraisal requirements, and whether buyers will be able to borrow as much as they need.


Factors to consider during the process

So how do you buy a house with cash? If you’re like most people, you probably don’t have hundreds of thousands of dollars stored underneath your mattress. Instead, you have that money tied up in assets, such as savings accounts, 401(K) accounts, retirement accounts, or brokerage accounts. So you’ll need to liquidate those accounts, essentially converting the marketable securities held in those accounts into cash. While it may be a relatively easy process to pull money out of your savings account, it’s not so easy to pull money out of a retirement account.

And it’s not always the case that it makes financial sense to start raiding all of your accounts for the cash. For example, if you start selling off positions in your brokerage account, you are probably going to be incur capital gains taxes. And if you start raiding your retirement accounts, you could be incurring both penalties for early withdrawal and tax consequences. So it might make sense financially to simply extend your timeline for becoming an all cash home buyer so that you don’t incur all these extra financial costs.

But once you do have sufficient cash to make an offer, the process of buying the house is much easier. Once you have ownership of the property, you can always get a mortgage. Often, you can get 24-hour closing on this loan. You can use this loan amount to pay back anyone you might have borrowed money from and refill any financial accounts you might have emptied. If you do this quickly enough, you may even avoid some of the financial penalties charged for taking money out of a retirement account too early.


Financing Strategy for the All-Cash Buy

There are various ways to use this delayed financing strategy. The most common is the Fannie Mae program that enables certain buyers without mortgages to obtain what is known as a “cash-out refinance” soon after closing on a home. That means you can get back most of your cash back almost immediately. However, you have to be able to show that there are no liens against the home and you must be able to document all sources of cash you used to acquire the home.

Buying a home with cash and then getting a mortgage essentially reverses the traditional home buying process, and can be an effective way for high net worth individuals to deploy their capital and assets most effectively. In many cases, you’ll be putting in an all-cash offer for a property at the same time as you are lining up preapproval for a loan later.

Moreover, coming up with sufficient cash for an all-cash offer will make you an attractive buyer in a competitive real estate market. It could be the difference between getting your first-choice home and your second-choice home.

Please note: All the suggestions in this article regarding buying a home with cash, then getting a mortgage are initial guidelines to get you started. Consult with a tax professional or financial expert when making these decisions.

1Guide to Short-term vs Long-term Capital Gains Taxes (Brokerage Accounts, etc.) – TurboTax

2Tax Rules on Early Withdrawals from Retirement Plans – IRS.GOV

3Dos, Don’ts For Taking A Short-Term Loan From An IRA – NASDAQ