The Advantages of Buying a House With Cash
When people talk about buying a house, they automatically think about paying a mortgage for the next fifteen to twenty years. The idea of buying with cash doesn’t cross most people’s minds, but it can provide great benefits.
In my opinion — and according to many experts and homeowners — buying a house with cash is a great choice if you can do it. Here are some of the most important reasons why.
No Loan Process
There are several reasons why someone might get rejected for a mortgage. Some people do not have good enough credit. Some do not meet the income requirements.
There are other times that it is the property itself that gets rejected. If a house isn’t in good enough shape, a lender probably won’t approve the loan.
You see, if you default on a mortgage loan, the lender repossesses the house. They want to know before they loan the money that if this situation occurs that they’ll be able to sell the house to get their money back. They are not likely to loan money on a home that they’ll have to do a lot of work to or potentially lose money on.
Paying cash means you don’t have to worry about getting a mortgage or being rejected for one. Skipping this hassle is a huge attraction to home buyers.
Competitive Edge
So here’s the thing: When you find the home you want to buy, you are probably not the only one interested in it. Until you sign the paperwork and get the keys, it’s kind of like a race — trying to get everything handled in time and offering a desirable amount to the seller. There is always a chance someone else will win the home.
Buying a new home with cash gives you a competitive advantage over other buyers. How? Well, I’m glad you asked.
To explain, we’re going to have to get very realistic about the mortgage process. Remember, though, before I say what I’m about to say, I am not trying to tell you not to get a mortgage. These are just things to know when it comes to a buying new home with a mortgage.
The mortgage process can be kind of slow, and there are some things that could slow it down or even stop it in its tracks.
Approval
Let’s start at the beginning. When you apply for a mortgage and the lender thinks you’ll get approved, you’ll get a preapproval. A preapproval simply means that according to the information the lender has at that time, they believe you’ll be approved.
You’ll take this with you when making an offer on the house. It lets the seller know that you should have the funds available to purchase the house.
Sadly, this can change. After you make an offer on the house and it’s accepted, it’s time to finalize the loan.
Sometimes between preapproval and finalization, the buyer will apply for other credit, miss a payment, or do something else that causes their credit to change. When the lender runs their credit again, they are no longer approved, or they might get approved for a lower amount.
When you buy a house for cash, there’s no approval process, so once you make an offer it doesn’t depend on anyone else but you.
Not Getting Things Done Quickly Enough
Again, we’re talking about a race. That means you have to get to the finish line first to win. In this case, that means getting all of the paperwork, offers, and negotiations done before other potential buyers. And there are several reasons this might not happen, including:
The buyer not turning in everything to the lender in time for approval.
The lender not getting everything processed quickly enough. While not always the case, this might happen due to incompetence. Sometimes it’s due to life, in general. Do you know how easy it is to get off track with your to-do list? It can happen with lenders, too. And sometimes, it’s just because they have many loans to process at once.
Regardless of the reason, the bottom line is that things do not always get processed fast enough. When buying with cash, though, you cut out most of these potential issues. If you show the seller that you have the cash ready to go, they will typically lean more heavily towards you as there is much less to wait on.
Even better, because you have no mortgage lender having to process everything, it doesn’t take as long to close. When you are buying a new home with cash, the process goes much more quickly, so you get to move in more quickly.
It Costs Less
Another great advantage of buying a new home with cash is that once you’ve paid, you’re done. You don’t have to worry about monthly mortgage payments, and you certainly don’t have to worry about crazy amounts of interest.
Here’s another thing: When you pay cash, you don’t have to pay the extra fees, like loan origination fees. And, typically, you’re closing costs will be lower than with a mortgage.
Sounds pretty good, doesn’t it? Who really wants to have to pay all that extra money when you don’t have to?
No Foreclosure
Once you’ve bought the house, it’s yours to keep. No one is going to foreclose on it due to missed mortgage payments.
Keep in mind, though, that you’ll still owe property taxes. And the government can take your property if you do not pay your taxes. However, you don’t have to worry about that over your monthly mortgage payments.
Disadvantages of Buying a House With Cash?
Okay, we can’t talk about the advantages of buying a new house with cash without talking about the disadvantages. For every up, there is a down. So, let’s take a look.
It’s A Lot of Money
Let’s say you somehow saved up $200,000. You find the home of your dreams within your budget, and you buy it. The good news is that it’s all yours. You are not making payments every month.
The bad news is that the entire $200,000 is gone. This is not necessarily a bad thing, especially if you have more money put away. It is worth considering, though, because there is always a chance you’ll need that money for something else.
Yes, you can get a loan against your home if you need to. You can also sell your home if you are in desperate shape. The trouble is that these options can take a while.
When you get a mortgage, you can usually tap into your home equity more easily. You can get a home equity line of credit, or a cash-out refinance. In short, you’ll typically find yourself with more — or at least simpler — options with a mortgage.
Tax Breaks
When you pay a mortgage, you qualify for a mortgage-interest deduction. For most people, this is not really a good reason to get a loan as mortgage-payers typically won’t get all the money back that they pay out.
Again, though, it’s something to take into consideration, especially if you feel that such deductions are worth it. It’s best to talk to your tax professional or financial advisor to determine if the deduction would give you a good enough reason to get a mortgage.
So, Should I Buy A New Home With Cash?
Personally, if I had the money to pay for a house outright, that’s exactly what I’d do. I’ve considered my family’s situation, and I know that we would gain more from buying a house with cash than getting a mortgage.
However, it is completely up to you. If you cannot decide, speak to a professional. A financial advisor can help you decide by going over your financial situation, life, and goals.
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How to Buy a House With Cash
If you decide to buy a house with cash, these are the steps to follow.
1. Situate Your Cash
This isn’t going to be hard if you have it all in one spot. However, if you have your money spread between banks, investment accounts, and so on, you’ll want to get it to one bank, so it’s ready when you are.
Once you have it all settled, get proof from the bank that you have the cash. They can generate a letter that you can take to the seller or real estate agent showing that you have the funds available for transfer.
2. But Don’t Bring Cash Along
Here’s the thing: buying a new home with cash doesn’t actually mean walking up to the seller with a giant envelope full of hundred-dollar bills.
Not only is this unsafe for you, as someone can easily rob. It’s also inconvenient. No seller wants to actually have to sit around and count all that money.
Instead, you’ll start by giving them the statement of proof from the bank. If you all agree to the sale, you can either get a cashier’s check or do a wire transfer.
3. Find a Settlement Agent
If you don’t get a mortgage, you won’t have a lender to work through, but you’ll still need help with some things. For example, you’ll need help with all of the closing paperwork, title research, and more.
A settlement agent could be an escrow company, a title company, or attorneys that specialize in real estate closings. Find one to help you with all of the paperwork. They might also need to help you with transferring the funds.
4. Look for Your Home
Here’s the fun part: finding your home. Well, the fun and stressful part. You get to look for a place that suits your family, and it can be fun. Sometimes, though, it’s hard to find that place and can be overwhelming.
Once you find the home you love, you’ll want to jump on it quickly. Reach out to the settlement agent to start the title research, and present the real estate agent with an offer and the statement of proof of funds.
5. Negotiate Price
When you find your perfect home, you can negotiate the price. Often, when you pay with cash, the seller will accept a lower offer. Of course, this depends on the seller, but it does give you a bargaining chip.
6. Consider All Costs
Don’t forget to include all costs in your negotiation. Sure, you will pay less overall since you aren’t worrying about loan fees. However, you’ll still probably be paying closing costs.
You don’t want to have to take out a loan just for those closing costs. So be sure that you add these into your negotiations.
While this isn’t necessary, it’s important. If you are anything like me or thousands of other new homeowners, you’ll want to do some shopping for your new home. You’ll want to keep some money to the side for this.
Whenever we move, I want to decorate the kids’ rooms and replace any furniture or appliances that do not make the trip with us. Whether we are renting or trying to buy, I always try to keep some money back to take care of those things. If you want to furnish your home with new stuff, you’ll need to subtract that amount from whatever you choose to offer on the house.
7. Set Up Contingencies
Be sure your offer contains contingencies. For example, make it clear that you will pay the negotiated price for the home as long as it passes inspections, title clearance, and anything else.
8. Get Inspected
When you get a mortgage, they require several things, such as a home inspection. Usually, you’ll also need a land survey and home appraisal.
Of course, this is typically not true if you’re paying in cash. This does not mean, though, that you shouldn’t have them done.
It’s up to you to protect yourself from a bad deal when buying with cash. And it is best to use some of the cash you saved to have all of these inspections, surveys, and appraisals have taken care of.
9. Don’t Forget Homeowners Insurance
Mortgage lenders require that you have homeowners insurance to help protect your investment. When buying a new home with cash, home insurance is up to you, but you really should get it.
Think about this: let’s say you spend all of your savings on your new home. Sadly, a fire destroys it, and you don’t have insurance.
Where will you live? How will you get back on your feet? All of your money went into the home, so there’s nothing left to help you rebuild. Getting home insurance is another step towards protecting yourself.
The good news is that you can determine exactly what type of insurance you want for your home since a mortgage lender does not dictate it. Check out Insurry to explore your insurance options.
10. Get Your Money
After all of your wheeling, dealing, and inspecting is done, you’ll need to secure your payment. This will either be through the cashier’s check or the wire transfer we talked about earlier, depending on the agreement.
11. Do the Final Walk-Through
Before closing, do a final walk-through. Make sure everything is as it’s supposed to be. For example, if the agreement stated that the fridge would stay, make sure it’s there.
Also, make sure that the place is clean and there is no new damage. If you notice anything, make sure it’s addressed before everything is finalized.
12. Close on the House
It’s time to finalize and get your keys! The house is now yours, and it’s time to celebrate.
Let Us Help
Buying a house with cash is a great option, but not everyone is at a point where it’s possible. That’s okay because we can help you get there.
The Goalry Mall is a place that helps your finances and your financial goals meet. You can link all of your accounts to keep up with your spending, get help budgeting, keep up with your bills and debts, shop for insurance, and even compare loans if you decide a mortgage is the best choice.
Conclusion
As you can see, there are many advantages to buying a house with cash, but there are also disadvantages. You’ll have to consider your own situation and goals to determine if it’s the best choice for you. And, again, seek guidance from a financial pro if you have a hard time deciding.