7 Things You Should Know About Buying a House with Cash
You may have heard the term "the Cash is king" but is that really true when buying a house? Are there benefits or disadvantages to buying a house with all cash? Does it lock in your investment rather than freeing up liquid funds? Here are seven reasons for buying a house with cash might be a great option for you. Did you know that 14% of homebuyers pay cash for their property? The main reason is that cash offer stand out and homebuyers avoid taking on any debt
Cash offers a stand out.
Obviously in a world where refinance just about everything, handing over $500,000 in cash will definitely make an impression. In a competitive market, all-cash offers can provide the leg up that many homebuyers need to get the deal. However, they're not the only tipping point. Terms have to be agreeable to the seller and if all-cash offers come with some stringent terms only favorable to the buyer, sellers may choose a financed offer over the cash offer.
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Obviously, if you purchase a home with all cash you won't be taking on any additional debt. You won't need to make monthly payments to a lender but you will need to still pay property tax and homeowners insurance which can be paid monthly, biannually, or annually.
What are some disadvantages to buying a house with all cash?
You won't have any liquid funds. If you put all of your money into your house that means all of your liquid funds are now tied up into an asset. If you maintain an emergency fund that can sustain you for a few months if you lose your job you will have cash on hand for emergencies. If all of your cash is tied up into the house you may need to refinance and still take out a mortgage at some point.
If you qualify for a favorable mortgage and have great credit, applying for a home loan is not that big of a deal. Lenders will find you favorable and offer more mortgage options. If you have a down payment of at least 20% you won't need to worry about mortgage insurance and usually get the best rates and terms.
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You may be able to invest better elsewhere. If you're sitting on a big pile of money buying a house might not be the best option. Speak to a financial advisor and see if that money can be better invested elsewhere. Yes, homes do increase in value the longer you hold onto them but you may have a better return on investments by choosing to put that money somewhere else.
You could benefit from tax breaks. Nearly all homeowners with a mortgage can receive a tax break on interest paid to the lender even though new rulings and tax laws have almost made this obsolete depending on how much you're actually paying each year. However, owning a home can be a huge tax break and you can even deduct your property tax.
Related: Are Cash Offers Questionable?
There is no home value guarantee. While this may be true, chances are home values will continue to rise even if there is a dip here or there. If you own the home or investment stays secure and you're actually using your investment while it's making money for you.
So, should you buy a house with all cash?
The answer may be different for every person. It really depends on your financial situation. Paying cash can make an offer more attractive and you'll own the property outright but a mortgage can help you get into the homeownership game a lot faster.
Buying a home with cash typically takes less than a month to close because there's not a lot of financing documents to deal with. However, you'll still need an inspection and an appraiser to make sure you're not overpaying for the property. Without a down payment, loan fees or points, many closing costs are far less with a cash offer than those with a mortgage but again, it really depends on whether or not this works for you. Speak to your lender, real estate agent, or financial advisor about the best option for you. So many Sanderling circumstances can really determine whether this is the best option or not.
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