Buying a home with cash has definite advantages in today’s market. National Association of Realtors® research on cash sales shows that about 30 percent of residential sales are cash transactions. Among investors and international buyers, more than 70 percent of properties are bought outright. If you can afford to buy up front, the advantages are many:
§
All-cash
purchases streamline the home-buying process: No loans means less paperwork and
no delays for mortgage approval.
§
Cash buyers
can save money on closing costs, bank appraisals, mortgage applications and
fees, title insurance, and so on.
§
Cash
purchases eliminate the risk of loan denial.
§
Cash buyers
pay much less for their homes in the long run: No loans means no interest.
§
Cash buyers
never have to worry about losing their homes because they can’t afford to repay
their mortgage loans.
§
Cash buyers
gain full, immediate equity in their home.
Financially and emotionally, paying with cash benefits
the home buyer.
Sellers prefer cash buyers
Home sellers generally prefer quick, smooth sales. They know that even buyers who have been preapproved for mortgages might be denied by the lender later on. For example, a buyer who is an independent contractor might have difficulty proving two years of regular employment, or a buyer depending on a family member for a personal loan might later opt out (or the relative might). Therefore, when possible, sellers prefer to steer clear of buyers who have to apply for a mortgage. If you are buying with all cash, you have greater negotiating power on price, closing time, repairs, and more. Sellers are often willing to reduce the house’s price for cash buyers.
Home sellers generally prefer quick, smooth sales. They know that even buyers who have been preapproved for mortgages might be denied by the lender later on. For example, a buyer who is an independent contractor might have difficulty proving two years of regular employment, or a buyer depending on a family member for a personal loan might later opt out (or the relative might). Therefore, when possible, sellers prefer to steer clear of buyers who have to apply for a mortgage. If you are buying with all cash, you have greater negotiating power on price, closing time, repairs, and more. Sellers are often willing to reduce the house’s price for cash buyers.
Cash purchases avoid the risk of low appraisals
Home appraisals are notoriously fickle. Lenders determine a home’s worth by weighing it against comparable sales — other homes in the neighborhood that may have sold at low prices for unknown reasons. A low appraisal could lead the lender to reduce the amount of the loan offer, even after seller and buyer have agreed on a price. If the loan amount comes up short, the buyer often cannot afford to buy the home. All-cash buyers sidestep mortgage applications, avoiding the need for a potentially deal-breaking home appraisal.
Home appraisals are notoriously fickle. Lenders determine a home’s worth by weighing it against comparable sales — other homes in the neighborhood that may have sold at low prices for unknown reasons. A low appraisal could lead the lender to reduce the amount of the loan offer, even after seller and buyer have agreed on a price. If the loan amount comes up short, the buyer often cannot afford to buy the home. All-cash buyers sidestep mortgage applications, avoiding the need for a potentially deal-breaking home appraisal.
Cash purchases save money and time
Indisputably, cash purchases carry lower costs. Mortgage interest on a 30-year loan can double or triple the original purchase price. Additionally, closing costs are significantly lower when purchases are made with cash. Cash purchases also save buyers valuable time, eliminating the need to gather elusive documents and search for the optimal lender.
Indisputably, cash purchases carry lower costs. Mortgage interest on a 30-year loan can double or triple the original purchase price. Additionally, closing costs are significantly lower when purchases are made with cash. Cash purchases also save buyers valuable time, eliminating the need to gather elusive documents and search for the optimal lender.
Peace of mind is priceless
Most importantly, all-cash purchases bring an inviolable sense of security. Owning your home outright means never having to worry about covering your mortgage. In the face of disaster, such as job loss or injury, full ownership eliminates the risk of losing your home to foreclosure. Moreover, if you have paid cash, you will have excellent equity in the house. In case of financial emergency, you can draw on that equity for quick cash.
Most importantly, all-cash purchases bring an inviolable sense of security. Owning your home outright means never having to worry about covering your mortgage. In the face of disaster, such as job loss or injury, full ownership eliminates the risk of losing your home to foreclosure. Moreover, if you have paid cash, you will have excellent equity in the house. In case of financial emergency, you can draw on that equity for quick cash.
Figure out how to pay in cash
Buying your house with cash might seem like an impossible dream. Here are some tips to help you achieve it:
Buying your house with cash might seem like an impossible dream. Here are some tips to help you achieve it:
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Set aside
unexpected windfalls, such as work bonuses or inheritances.
§
Lock money
in a long-term CD to earn interest.
§
Once you
have accrued cash, look for a house you can afford without borrowing extra
money.
§
Consider
moving to a less populated area, further from a big city, where home prices are
likely to be lower.
§
Avoid the
temptation to waste money. Tell your friends and family about your goal of
buying a home; they will help keep your spending on track.
Gilan
Gertz wrote this article as a contributing journalist for the Texas Association
of REALTORS®
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