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Buying a Home with Cash

 

The housing market has changed quite a bit over the years. In the past, people looking to sell their homes often waited for the highest bid to roll in, regardless of the payment method the bidder brought to the table. In today's market, however, foreclosures run rampant and homeowners may feel a bit nervous when selling to buyers without any money down and who are waiting on the approval of a lender to purchase a home. Paying in cash has become a more attractive option for sellers to choose. There are many reasons why buying a home with cash can be a good idea, but there are also a few reasons why a cash offer may not be the greatest route even if there’s enough money in the bank to slap down the amount in cash.

A buyer who can purchase a home with cash in hand is an attractive option from the seller’s standpoint. This is because buyers who are waiting on financing may not be approved, therefore may not be able to afford the home. A seller would likely choose a buyer with cash in order to ensure that they are serious and that there is less of a chance that they will not be able to purchase the home due to finances.

Sellers are often looking to have a home sell quickly. With cash, the amount of time to wait for closing can be diminished significantly compared to a sale where the buyer is waiting on the lender. One of the least fun parts of purchasing a home is filling out form after form and signing massive stacks of paperwork. With a cash buy, paperwork can be more streamlined since the financial aspect of the home rests with the buyer and doesn’t include another party such as a mortgage company or bank. Offering a cash bid does more than letting the bidder offer a small amount less with the assurance of payment for the seller. A cash bid eliminates the need for lenders fees, interest to be paid on a mortgage, and lessens the number of people necessary in the sale process. Although, purchasing a home outright can shave some money off of the final price, but paying on a mortgage can also save some money- though it can take a bit of time. Mortgages are frequently tax-deductible, so that is a perk potentially lost in a cash sale.

When buyers who are taking out a mortgage loan are in the process of closing, the loan company will likely send an appraiser to the property to make sure that they aren’t loaning more money than the home is worth. Home appraisers can be sticklers and this means that a buyer may have their lender pull some funds from the loan, therefore making it impossible for the buyer to purchase the home. This is one instance where buying with cash can be a great advantage in the eyes of the seller. A cash offer skips the loan companies altogether, so a strict home appraisal is not necessary.

There’s a fear that can come with taking out a loan for a home- what happens in the event of job loss or wages being cut? In the event that mortgage payments can’t be met, it’s possible to lose a home. However, there is less of a fear of losing a home when the home has been purchased outright since there are no monthly payments to be made or missed.

In some cases, getting a mortgage to buy a home isn’t even an option. Self-employed people and contract workers may struggle to provide the proof necessary to qualify for a loan. Sometimes those moving from other countries are denied loans for various reasons. People who have struggled to build credit may not be in a place where lenders will loan them money for a mortgage. Whatever the case may be, cash may be the only option for some individuals.

As with all homes, buying a home with cash should be considered carefully. Homeowner’s associations, maintenance fees, home insurance, and other such payments should be carefully calculated. Buying a home with cash may seem to be the best value, but if these fees aren’t calculated into the final cost then a buyer may find themselves in a jam when trying to pay the monthly and yearly costs.

One warning for purchasing with cash is that a mortgage can allow for more liquidity. Owning a home fully by purchasing without a mortgage can be freeing regarding no house payments, but in the long run, it’s good to make sure to only pay with cash if there is also a financial reserve of liquid assets to fall back on in case of emergency. Sometimes, buyers jump the gun and buy with cash because they can, then they find themselves in a bind since that cash was the majority of the money they had and their emergency funds were exhausted to buy a home.

Buying with cash is a great option for those with the means. It can have its downfalls, as is the case with many other routes available for purchasing a home. The fact is that buying a home always comes with a bit of risk, but one of the great things about a cash offer is that, at the end of the day, the house payments have all been made and buyers can sleep a little bit easier knowing that their home is just that- theirs.

Sources

http://www.investopedia.com/articles/personal-finance/111214/buying-home-cash-vs-mortgage.asp

http://www.realtor.com/advice/buy/advantages-to-buying-a-home-with-cash/?is_wp_site=1

http://www.investopedia.com/articles/personal-finance/071114/should-you-pay-all-cash-your-next-home.asp

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