A question that comes up when I talk with buyers in San Francisco is, “I can buy in cash. Should I?”
Some have spent years saving and investing. Others have sold a startup or sold some of their company shares after an IPO. Once there’s a house they actually want, I like to separate two decisions. Would an all-cash offer give us an advantage on this house? And how much money do you want available after closing?
On a competitive $5 million home, I often lean toward cash if the buyer can comfortably do it. Before I recommend it, I want to know what the seller cares about and what we’re competing against.
When does an all-cash offer help on a San Francisco luxury home?
Say we’re going after a $5 million home and the seller has set an offer deadline. Buyers are working toward the same date, and the seller can compare offers side by side. Price matters, of course. So do the contingencies, the closing date, and how confident the seller is that each buyer can follow through.
Before we write, I like to call the listing agent. I want to know what would make an offer easy for the seller to accept and what might make them hesitate. Maybe they’ve already bought another home and want to close quickly. Maybe they’re worried the lender’s appraisal will come in low and the buyer will ask to renegotiate. Or maybe they just need enough time to move.
A four- to seven-day close sounds impressive on paper. But if the seller needs a month before handing over the keys, I’d find out what closing and move-out dates actually work for them. That may do more for our offer than the fastest close we can manage.
If two offers are close on price and the seller is worried about financing, cash can help. We can show that the funds are available, and the purchase can close without waiting on a mortgage lender. If we’re up against several credible cash offers, I’d spend more time on what the comparable sales support and which terms matter to this particular seller. And if the house has been sitting and the seller is open to negotiating, I’d see what we can do on price while giving your lender time to close.
When might a mortgage make more sense?
On a $5 million purchase, putting $3 million down would leave you with about $2 million more available than paying in cash, before differences in closing costs. You’d also have a $2 million mortgage. I’d ask your lender to show you the monthly payment and loan costs, then think about what you’d want to keep that cash available for. If you’ve recently sold a business or company shares, I’d check with your CPA on what to set aside for taxes first.
A house that needs work makes this decision more concrete. Budget for the renovation and for where you’ll live while it’s happening. You might be paying rent or carrying the costs of your current home while already paying property taxes and insurance on the new one. I’d run the numbers for the expected timeline, then see what another couple of months of paying for both places would cost if the work runs long.
If the house qualifies for a standard mortgage in its current condition, financing part of the purchase could leave you more cash for the work and temporary housing. If it needs major repairs, I’d bring the lender in early. A renovation loan may be an option, but it can involve reviewing the plans and budget and releasing funds as work progresses. Fannie Mae’s guide to renovation financing.
Can you buy in cash and get a mortgage later?
In some cases, yes. If cash gives us an advantage on offer day, you can ask your lender about buying with your own funds and borrowing against the home afterward. One option for eligible buyers is called delayed financing. Fannie Mae’s guide to delayed financing.
On a purchase at this price, I’d have that conversation before we submit. How much could you realistically borrow, and how soon? What happens if the appraisal comes in below what you paid? I’d want you to feel comfortable with the purchase even if more of your money stays in the house for longer than you planned.
Before offer day, I like to know your ceiling for the purchase and how much you want to keep available afterward. Then, when we find the right house, I can tell you where I think cash would help, which terms I’d focus on, and what I think the comparable sales support.
If you or someone in your family is planning to buy in San Francisco and you’d like to work together, email me at greta@mosaikrealestate.com. I’d love to hear what you’re looking for and tell you how I can help.
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Greta Tengattini