Closing Costs for a Cash Purchase: How They Differ from Financed Sales

2 February 2025

Buying real estate is an exciting journey, but let’s be real—there’s a lot more to it than just signing on the dotted line and grabbing the keys. One of the most misunderstood parts of the process? Closing costs. If you’re thinking about buying a property with cash, you might be wondering how your closing costs will compare to someone taking out a mortgage. Spoiler alert: they differ—big time.

So, let’s take a deep dive into what closing costs look like for a cash purchase versus a financed sale. Whether you’re considering skipping the mortgage route or just curious about the differences, I’ve got you covered.

What Are Closing Costs, Anyway?

Before we dive into comparisons, let’s make sure we’re all on the same page. What exactly are closing costs?

Basically, closing costs include all those pesky fees you have to pay to close a real estate transaction. These cover things like taxes, legal fees, title insurance, and other charges. Think of them as the behind-the-scenes players that make your purchase official.

Closing costs can add up fast, whether you’re paying cash or taking out a mortgage. But here’s the kicker: the type of transaction you choose—cash or financed—will determine how much you shell out and on what.

The Basics of a Cash Purchase

So, you’re paying cash. First off, kudos! That’s a big deal. Paying cash means you’re skipping the whole mortgage process, which also means you’ll avoid a bunch of the fees that come with it.

But don’t get too comfortable—you’re not completely off the hook when it comes to closing costs. Even though they’re usually lower for cash buyers, there are still some costs you’ll need to handle. Let’s break it down, shall we?

Closing Costs for Cash Purchases

When you buy with cash, you’re essentially streamlining the process. No loan, no lender—just you, your money, and the seller. But there are still a few things you’ll need to pay for:

1. Title Search and Title Insurance

Ever hear the phrase “buyer beware”? Yeah, that definitely applies here. A title search is like digging up the past to ensure the property’s history is squeaky clean—no old liens, ownership disputes, or other skeletons in the closet.

Then there’s title insurance, which protects you in case something sketchy pops up later (think of it as a safety net). Most cash buyers end up paying for this, and trust me, it’s worth the peace of mind.

2. Property Taxes

You can’t escape Uncle Sam. When you close on a property, you’ll likely have to pay prorated property taxes for the year.

3. Attorney Fees

Depending on your state, you might need a real estate attorney to ensure everything’s legally airtight. Even if it’s not required, having an attorney review your paperwork can save you from potential headaches later.

4. Home Inspection Fees

Sure, you’re paying cash, but don’t let that tempt you into skipping a home inspection. Spending a few hundred dollars upfront can save you thousands in surprise repairs down the road.

5. Recording Fees

When you buy property, the deed needs to be recorded with the local government. This isn’t free, of course—welcome to recording fees.

6. Miscellaneous Fees

There might be other small costs along the way, like HOA fees (if applicable) or courier fees. These won’t break the bank, but they still count.

How Do Closing Costs Differ for Financed Sales?

Now, let’s switch gears and talk about financed sales. When you take out a mortgage, you’re essentially inviting a third party—your lender—into the transaction. And guess what? They bring their own set of fees to the party.

Here’s a breakdown of what you’ll typically pay in a financed deal:

Extra Costs When Financing a Property

If you’re using a mortgage, your closing costs are going to be higher. Why? Because there’s a lot more involved. Let’s look at some of the added expenses:

1. Loan Origination Fee

This is what you pay the lender for processing your loan. Think of it as the price tag for all that paperwork they’re handling for you.

2. Appraisal Fees

Your lender wants to make sure the property is worth what you’re borrowing. That’s where an appraisal comes in. Spoiler alert: you’re the one footing the bill.

3. Private Mortgage Insurance (PMI)

If your down payment is less than 20%, you might have to pay PMI. While this isn’t technically a closing cost, it’s an added expense tied to financing that cash buyers don’t have to worry about.

4. Discount Points

Want to lower your interest rate? You can pay for “points” upfront. This is optional, but it’s another cost to consider when financing.

5. Underwriting and Processing Fees

These are the nitty-gritty costs of getting your loan approved. They might seem small individually, but together, they can add up fast.

6. Escrow Fees

When you’re financing, there’s a good chance your lender will require you to set up an escrow account for things like property taxes and homeowners insurance. Setting up this account can come with additional fees.

Which Option Saves You More?

Okay, let’s cut to the chase: which option wins in the closing cost department?

If we’re talking strictly about closing costs, cash purchases are the clear winner. By cutting out the lender, you avoid a whole stack of fees. But remember, buying with cash requires, well, cash—a lot of it.

Financed deals might come with higher closing costs, but for many buyers, taking out a mortgage is the only way to afford their dream home. Plus, financing opens the door to tax deductions, like the mortgage interest deduction, which can offset some of the costs over time.

Cash vs. Financing: Key Takeaways

Here’s a quick recap to help you weigh your options:

- Cash Purchases: Lower closing costs, faster transactions, no monthly mortgage payments, but you’ll need to have a large sum of money upfront.
- Financed Sales: Higher closing costs, more paperwork, and ongoing mortgage payments, but it allows you to leverage your money and leverage potential tax benefits.

At the end of the day, the right choice depends on your financial situation and long-term goals.

Pro Tips for Keeping Closing Costs Low

Regardless of whether you’re paying cash or financing, there are a few ways to keep your closing costs in check:

1. Shop Around for Service Providers: Don’t just accept the first title company or attorney you’re offered; compare prices to get the best deal.
2. Negotiate with the Seller: In some cases, the seller might be willing to cover some of the closing costs—especially in a buyer’s market.
3. Ask About Discounts: Some providers offer discounts for cash buyers since the process is simpler. It never hurts to ask!

Final Thoughts

Closing costs can feel like the fine print in your real estate journey—easy to overlook but super important to understand. If you’re buying with cash, congratulations on skipping a bunch of the costs that come with financing. But remember, you’ll still have some expenses to cover.

On the other hand, if you’re financing, be prepared for higher closing costs but take comfort in the flexibility that comes with a mortgage. Either way, knowing what to expect will help you avoid surprises and budget more effectively.

So, are you ready to make your move? Whether you’re team cash or team mortgage, understanding closing costs is a step in the right direction.