If you plan on buying a house with cash, here is what you need to know:
Overall, purchasing a home with cash gives you a net advantage when negotiating with a home’s seller. Having cash puts you in a standpoint where you can negotiate a better price for yourself on the home. Often sellers are willing to take an over lower purchase price offer if the buyer is paying with cash. The main reason for this is that cash offers can close escrow quickly. This means that the seller receives their money quicker and they don’t have to wait for it. This also allows the seller to sell quicker with less risk the escrow may fall through and their home is on the market longer. It is not uncommon for a mortgage lender to be the cause of a delay or cancellation of escrow.
When buying a house with cash, you also do not have to apply for a mortgage which can sometimes be a lengthy and thorough process. Nowadays, lenders want homebuyers to show steady income and good credit scores before being pre-approved for a mortgage. Since the financial crises, all mortgage applicants have their income and credit primarily verified. The days of no-income verification loans are no more. Therefore, having the ability to pay all cash allows you to bypass the whole mortgage process of having to verify your credit and income worthiness to a lender. Also, paying with cash allows you to save on lender fees and closing costs.
Like most everything, there can be potential downsides to paying with cash as well. One key thing is that you are putting all your money into one place. In finance, a key rule of thumb is diversification and dispersing your money into different assets. Utilizing a mortgage can allow you to not “place all your eggs in one basket”. If, for instance, you need a quick return on your cash, you will have a disadvantage as potentially too much of your money is tied up into a home or investment property. Particularly in a buyer’s market this can be tough without a reverse mortgage as it can take a long time to sell a home in a bad seller’s market.
Overall, if you’re in a position where you can purchase a home with cash, there are many pros involved in the process including getting a better price on the home and not having to pay monthly mortgage payments. However, there are a few drawbacks to be aware of. We always recommend speaking to your real estate professional, a lender, and an expert financial advisor or CPA about your financial situation and the pros and cons of paying for a home all in cash.
If you have any questions or would like to learn more, Text or Call us today at (818) 527-2912!