You’ve worked hard, saved up your 20% down payment, found the perfect place. You’re finally ready to buy a house. Except, you are about to embark on a journey of numerous, tedious transactions: writing personal checks, sending a wire transfer, and even visiting your bank to issue certified cashiers checks. When it comes time to close on your home, and with cash to close in hand (or in this case, in the bank), you will likely make one of the largest transactions of your adult life.
How you make that transaction—and every other one in between—is extremely important, both for the safety of your money and the legitimacy of the transaction. Many home buyers come across the same dilemma when purchasing a new home: finding the safest, most acceptable way to transfer money. The most common way to make payments has been through wire transfer. Yet, ACH is quickly becoming the preferred payment type. What’s the difference? Both are methods of sending money electronically, both are (supposedly) secure, but minor—and major—differences in the transaction types could make or break your home buying deal.
A wire transfer is a way to send money from one person to another using either your bank or a provider such as Western Union or TransferWise. A bank to bank wire transfer typically takes place using the SWIFT or Fedwire networks and can be sent either domestically or internationally.
Traditionally, wire transfers are thought to be the easiest and safest way to quickly send money to someone else. Domestic transfers take as little as one business day to process and include very high limits. Chase Bank, for example, has an individual per-day limit of $100,000, with the option of requesting higher limits for business accounts. This aspect of wire transfers makes it a standard solution for paying closing costs when buying a home.
ACH stands for Automated Clearing House. When you send money via ACH, the money passes through a central clearing house before reaching its final destination. The National Automated Clearing House Association (NACHA) is responsible for approving the transaction before it is sent to the receiving bank.
While ACH may be an unfamiliar term, the truth is, it is everywhere. In fact, you have likely used ACH more than once without realizing it. Do you receive your paycheck via direct deposit? That is handled through ACH. When you pay your bills online, set recurring payments, or even use PayPal or Venmo, the system behind it all is, you guessed it, ACH.
Automated Clearing House transfers are becoming more and more popular due to their safety, ease of use, and speed. In fact, in 2018, the ACH network processed nearly 23 billion electronic payments, making it one of the largest payment systems in the world.
At the core, ACH and wire transfers serve the same purpose: getting money from one place to another. Quickly. And with as little hassle as possible.
That, however, is where the similarities end.
The key differences in ACH vs. wire transfers are safety, cost, and flexibility. Traditionally, in the real estate industry, a wire transfer or cashiers check was considered the safest and most effective method to make a large payment, and fast. That is no longer the case. ACH is quickly proving its status as one of the safest, most effective methods to send money electronically.
One of the most essential differences between ACH vs. wire transfers is the level of security. When sending large sums of money, there is nothing more important than ensuring that your money is safe.
While checks and wire transfers were previously thought to be the more secure payment methods available, ACH is proving them wrong. Consider, for a moment, the type of information that exists on a single paper check. Your name, address, phone number, bank account, and routing number all appear on every check you write (or don’t write).
NACHA advises consumers to consider your bank account and routing number as highly sensitive information, much like your social security number. Handing it out in the form of a paper check could be one of the riskier ways we make transactions.
Wire transfers are equally risky. In order for a transfer to take place, you must exchange complete banking info with the person on the other end of the transaction. Once the wire is sent, the transaction is final, and you can only hope that the money makes it to the correct account.
Due to the large transactions that take place in real estate, wire transfer fraud is on the rise. Scammers send convincing emails with wire details to home buyers, getting them to transfer their down payment to what they think is the lender’s bank account. Only to find out afterward that it was a con. Some home buyers have lost their entire down payment—and in many cases their entire savings—due to wire transfer fraud.
On the other hand, a survey conducted by the Fed revealed that ACH payments have the lowest fraud rate of any other payment type. The process of transactions being cleared through the central clearing house adds a layer of protection that is not available with wire transfers. Not only that, but the flexibility of an ACH vs. wire transfer boosts its security—and yours—even further.
Another significant difference between ACH vs. wire transfers lies in the flexibility of the payment. With wire transfers, once the payment is scheduled, paid for, and sent, it is irreversible (except in some cases of international wires). With the increase in wire transfer fraud, this is especially devastating for home buyers who have sent closing fees via wire transfer.
ACH payments, however, are reversible. Unexpected changes in a home sale, incorrect account information, or any number of issues can be dealt with by swiftly reversing the ACH funds transfer. Your money is ultra-protected when you can control where and when it gets transferred.
Wire transfers are notoriously costly. For domestic transfers, you can spend anywhere from $25 and upward to your bank to manage the transaction. International wire fees can be especially costly. Not only are fees charged when you send money, but many banks charge small administrative fees on incoming wire transfers as well.
This is not the case with ACH. Almost all ACH transactions are free (with a few, minor exceptions) and allow consumers to send money to friends, family, lenders, and any other individual or institution at no cost to either party.
From depositing your earnest money to the long-awaited closing, your home buying experience comes with a fountain of fees—attorney fees, inspection costs, insurance, HOA fees, and admin costs, just to name a few.
Because of the high transaction amount of closing costs, the real estate industry has long used wire transfers as their main method of making that final down payment. In the past, ACH payments have also had a limited per-day transaction amount, capping out at $25,000.
As of March 2020, however, the ACH per-day limit will increase to $100,000, matching that of most domestic wire transfers. Not only is it the safest method, cheapest, and easiest method to make payments, it is now the safest way to send large sums of money.
This new era of ACH limits brings with it a new era for the home buying experience. Why put your money and yourself at risk when you can make every transaction through the safety of ACH vs. wire transfer? LemonBrew Abstract is a new way to make your home purchase easier than ever before. From depositing earnest money to receiving your buyer rebate, ACH is the safest, most effective way to send and receive money.
Lemonbrew works to make money transfers safer and easier, and completely revolutionize the home buying experience. Don’t put your money at risk, when you can safely and effortlessly make every transaction with LemonBrew.