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How to know if Paying Cash for a House is Right for You
In today's world, house flippers and iBuyers are becoming more and more prevalent. As such, it's of great importance for buyers to be better informed when purchasing a home, especially if a cash transaction is involved. In other words, there are a lot of things to consider when paying cash for a home.
Even though there are several financial advantages of paying for your home with cash, there are some important things to keep in mind. When buying a home through a mortgage, the lending institution can pay for school, county, and other property-related taxes. The lending institution does this by charging additional money with each mortgage payment and pays the taxes when they are due.
For many homeowners, this can be a very convenient way of ensuring that you're not responsible for making the tax payments. But when you pay for cash, you have to always remember to pay your property-related taxes if you don't want Uncle Sam to be knocking on your front door. Make sure that you set the money aside to pay your property-related taxes on time.
More importantly, seek the services of a tax professional or financial advisor before paying for your house with cash. In short, paying for your home with cash is a huge financial decision, so it's best if you seek the services of a financial advisor before making this decision.
Benefits of Paying for Your Home with Cash
As we noted earlier, buying a house with cash has numerous benefits. Here are some of them.
Buying Cash is Attractive to Sellers
The old adage; "cash is king" makes a lot of sense when it comes to buying a home with cash. Sellers recognize that prospective homebuyers who apply for mortgages are more likely to face several roadblocks and their applications might be rejected altogether. And even without the rejections, applying for mortgages may face delays and the stringent nature of this process can be overwhelming to most sellers. That's essentially why you may see real estate agents advertising a house as 'cash buyers only'.
But when you present proof of cash, sellers will have more peace of mind and the sale is more likely to go through. With cash, you'll cut the lending institution out of the equation and there may be no hurdles or roadblocks that may hinder the process. In essence, cash is an enticing element when buying a home, It will not only attract the seller but will also give you an edge if there are other potential buyers for the house, especially if they're offering to pay through a mortgage.
You can forgo some Contingencies
When looking to buy a home through a mortgage, you'll typically be required to obtain an appraisal on the property. The lending institution needs to know the appraised value of the property before processing the loan. Generally, you'll have to pay for the appraisal fees, which can be a major hindrance especially if you don't have the money.
But when you pay cash for the house; you do not have to pay the appraisal fees, especially if you're confident that you're getting a good deal.
The Buying Process is a lot faster
One of the main advantages of paying for your house with cash is that you do not have to wait for 30 or 45 days for your loan to be approved. As such, you can negotiate freely with the seller regarding the closing date.
Given that you already have the cash you need to buy the house, you can eliminate the waiting period. The only thing that you should do is to schedule for house inspection to ensure that there are no issues with the house and this can take as little as 7 days.
You Might Pay Less
Paying cash for your home is attractive to most sellers and this can give you the much-required leverage on the negotiating table. When paying cash for a house, most sellers will be motivated and may choose to lower the price of the house, which can be advantageous to you as the buyer. This may be quite hard to believe but most sellers may even accept a lower price if you're paying cash.
You'll Save Money Over Time
When you pay cash for your home you'll not only avoid the monthly expenses of paying the mortgage but you'll eliminate the mortgage interest that will certainly increase the price of your home. Let's put it into context. Say you buy a home worth $200,000, at an interest rate of 5% per year; you'll end up paying about $100,000 in interest over the 10-year term of the loan.
Again, paying for your home with cash is a great way of eliminating fees that are often associated with mortgage applications.
Buying Cash Offers More Security in the Long Run
When you pay cash for a house, you'll not only own the property from the start but the house can be your savior in times of financial difficulties. In case you find yourself in financial difficulty down the road or if you just want to sell your home and relocate, you won't have to worry about repaying your mortgage. No matter how worse things become, you'll always have a roof over your head until you decide to sell.
How to Buy a House With Cash
Now that you know the benefits of paying cash for your home, it's important to know how to buy a house with cash.
Evaluate the Value of Your Money and the Value of the Home over Time
When using cash to buy a home, it's important to consider the value of your money now and the value of the home over time. Needless to say, the value of the home will change over time. If you take good care of the home, its value will appreciate after a few years. On the contrary, the value of the home will depreciate if you do not take good care of it. It's, therefore, essential that you figure out what the worth of the home will be in the future if inflation and all the other issues are factored in.
You should make sure that you're financially stable to cover the costs that come with owning the property. For example, you should have life and health insurance in place, as well as liquid assets to perfectly take care of your expenses and family obligations for at least six months. It could be helpful to create a budget and contact a professional real estate agent to guide you through the process.
Perform Due Diligence
It's vital to know the property and carry out the checks that a mortgage lender would do to eliminate the risks that might befall you when you pay cash for the house. In other words, you should perform due diligence and make sure that the investment is a safe one.
Here's what to do.
Search the property - In addition to the Local Authority Search, which checks for the plan, restrictions, and highway information, you should perform Regulated Drainage and Water Search (to check out if the property is connected to a water supply and the proximity to sewers), and the Land Registry Title Plan to show the boundaries of the land.
Check when the property was last sold - You should find out when the property was last sold and why the initial owner sold the house.
Do an Inspection - Make sure that you hire a professional inspector to carry a thorough inspection of the property and that there are no issues with the home. This is certainly one of the most important things to do before buying a home, with cash or mortgage. You do not want to pay cash for the home only to spend even more in repairing the home.
Check the build warranties - In addition to the normal insurance for the home, check if the house has new build warranties if it's a new house.
Check for hidden costs - Make sure that there are no hidden fees or costs before signing the deal.
To this end, paying for a house with cash has a lot of benefits. It will not only make the process a lot easier for both the buyer and the seller but it seems to be a good deal than a mortgage. If you can afford to pay for the house with cash, it's the best way to go. Just make sure that you perform due diligence so that you don't miss out on anything.