Buying a Home With Cash
Having enough cash on-hand to buy a home without taking out a mortgage loan is a huge advantage, especially in today’s economy.
All cash purchases speed up the home purchase process, and sellers are much more likely to favor an all cash buyer vs. a person needing a mortgage loan. Cash buyers are also able to negotiate at slightly lower price.
Financially and emotionally, buying a house with cash makes sense.
Here are four advantages to buying a home with cash.
1. Buying with cash saves time.
The distinct advantage of cash is that you can move fast – this means you don’t have to wait to be approved for a mortgage, and the seller won’t have to wait and cross their fingers that you’re approved.
Even buyers who are pre-approved can still be denied for a number of reasons.
- If the buyer works as an independent contractor they may have trouble proving 2-years of “steady income”.
- The pre-approved mortgage was cosigned by a family member who backs out.
- A big hit to your credit score.
Buyers who need a loan offer considerable risk for the seller, especially if they’re a first time home owner. And lenders underwriting a mortgage can take 30 to 60 days to finalize it.
2. Money off the asking price.
Since there’s less risk for the seller it makes sense that you’d want to leverage it for money off the asking price. Depending on the situation and experts say that buying a home with cash can negotiate 1-5 percent off the asking price, but on average you should expect 1-3 percent off the ask.
FYI: Buying a home with cash is even more of an advantage in large cities. If you’ve seen Million Dollar Listings, you may have noticed there’s an emphasis on “quick closing”.
3. Avoid the risk of a low appraisal.
Home appraisals are a fickle beast. They’re based on sales of comparable homes (known as “comps”) in the neighborhood, which could have sold for a lower price for any variety of reasons.
Lenders determine a home’s value by weighing it vs. a similar property in the same area that’s sold within the last 90-days.
For non-cash buyers, a low home appraisal means that the lender can reduce the amount of the loan they offer you (even after they “pre-approved” you for it). If the mortgage loan comes up short, the buyer may not be able to afford to buy the home.
4. Less stress.
Most importantly, a cash purchase means you can practically buy your dream home on-the-spot – no mortgage applications, down payment negotiations, credit score checks, etc.
Buying your home with cash also means not having to worry about covering your monthly mortgage payments. It’s essentially a “port in a storm” if you fall on hard times – because your home remains an asset, instead of a liability.
Moreover, if you’ve paid with all cash, you have 100% equity in the house. In event of a financial emergency, you can use it to draw out equity for quick cash.
Buying your house with all cash might feel like a far-off dream, especially if you’re a first time home buyer.
To help you get there faster here’s some tips:
- Set aside unexpected cash (a work bonus or inheritance)
- To safeguard your money (and earn interest!), hold it in a long-term CD at the bank
- Create a weekly budget
- Avoid the temptation of buying frivolous things