A home will be one of the biggest investment you are going to make in your life. Having your own home is something to be proud of, but the process of getting one will involve work, effort, and money. Paying cash for a home can seem like a far-fetched dream for many people, but it has started to become more common in the real estate market. There are many factors that have made people pay cash for their homes. One question many people ask themselves when they want to buy a home with cash is it a good idea? Below are the benefits you can expect to get when you pay cash for a home.
Cash buyers often get discount
In the past, the sellers did not care whether the buyer was coming with all the cash or it was financed. The seller was just looking at buyers who were able to offer the highest number. This has started to change. Banks are back to lending but it has become even more onerous, and there is a lot of things that a borrower will need to do before they can get it. Someone who is buying on cash can be at an advantage because there are able to provide a sureness of sale, and thus they can get a price discount. Cash buyers have started to become more attractive in the real estate market.
Lower closing costs
Cash buyers can save a lot on closing costs. You will end up saving a lot of money because there are no costs related to applying for a mortgage. You don’t need to spend money on a bank attorney for the mortgage. These expenses can be $750 and up (it is important to get your own lawyer when buying a home). You also don’t have to put real estate taxes in escrow up front or paying the mortgage application which can be $300 to $600. There is also the thousands of dollars in assorted junk charges and loan origination fee, which you don’t have to pay for when you are paying for cash. When buying using a lender, you usually have to pay between $400 and $600 for an appraisal, which mortgage lenders insist must be down, and there are times when you have to do the appraisals many times over.
Many realtors will recommend getting an appraisal and a home inspection. This is a good idea because it ensures you are not overpaying or buying a home that is riddled by structural problems. If it is clear that you are getting a good price on the home, then a home appraisal is not a must.
Title insurance is an expenses you don’t have to pay for. This usually offers protection against any problems with ownership and claims such as taxes or liens on the property. If the home you are interested in is $600,000 and a twenty percent down payment, the title charges that can also include research of the local land records can reach $2,000. In most cases, about a third of that will be coverage protecting the lenders only (this is why they ask you to get it and pay for it). When you are paying the house on cash, you don’t have lenders, and this means you are saving a lot. When buying on cash, you are the one to decide if you need a title insurance in the first place.
A mortgage is not guaranteed
No matter how good your credit is, if you have not applied for a mortgage for some time, you can be shocked when you do. Even if your finances are in order, the lender can decide not to approve your mortgage if the appraisal of the home you are interested in doesn’t reach the price you have agreed with the seller. This is one of the biggest issues affecting people planning to get homes. The time it takes for the mortgage to be approved has also increased, from an average of 30 days to 45 days.
Many of the problems that mortgage buyers experience will be of advantage to you as a cash buyer because it means you have less competition from people who still need to apply for the loan. When you are interested in a house, you just tell the seller that your bid does not come with a mortgage contingency, and stress on this point.
Giving up a tax break
Currently, any interested that is up to $1.1 million in mortgage principal that was used to buy, improve, or build a first (and second) home is tax-deductible. If you decide later to borrow against the home for something that is not home improvements, then you will have far much-limited deductions. This is what is there currently, but this can change if a tax reform law is passed, which will have an effect on tax breaks.
Cheap money is relative
The rates are currently very low, and this is why there are some people who prefer taking the cash they have and investing while they take out a mortgage. This can seem like a great idea, but this will only work when the after-tax return on the investment will be greater than the after-tax cost of the mortgage.
The sense of security and ownership
If you go through hard financial times like losing a job, you don’t run the risk of having your home foreclosed because you own it completely. No matter how things go wrong financially for you, your family will always have a place to live. This will give you some peace of mind.
There are some instances when you need money whether an emergency or paying for college. Having equity on your home can help because it means you can borrow a loan. It is important to have an emergency fund so you don’t end up applying for a loan, which can put you in a worse financial situation. Buying a home with cash will come with a lot of benefits, and you will have less stress during the process.