Whenever someone decides to buy a house, there’s always that question: what if I pay it off with cash; all in one shot? Enticing as it may seem (for both the home seller and the home buyer) it’s not all black and white – if you’ve been following our Real Estate Tips and Advice for a while, you’ve probably realized by now that nothing in Real Estate ever is, right?
In this article, we discuss buying a house with cash vs mortgage; its temptations, pitfalls and reasons.
First, let’s discuss how the buying a house with cash process differs from getting a mortgage.
The first box to check when you start the home buying process concerns funds: Do you have enough money in the bank to pay the whole value of the house upfront? The best thing about the whole buying a house with cash process is that you don’t actually have to have the full asking price of the house you have. You just need to have available something close to that asking price, as you’ll likely manage to negotiate with the home seller a lower value because you are paying directly to him. And he’ll likely agree, because imagine this: another guy makes an offer on the house, paying the full price he asked, right? They go through with the appraisal and everything, but the mortgage lender doesn’t approve the financing in the end and he lost a lot of time with all of that. Buying a house with cash shows you are a serious buyer and leads to quicksales. If he’s game to it, he’ll have the money in his pocket and the house fully transferred to you in less than 2 months after he accepts the offer, which will hardly be the case when getting a mortgage loan. And even if something happens and the deal falls through, it will happen much faster and he’ll be back in the market.
Now, after the home seller and home buyer reach a fair market value, they could go directly to the transfer of title, but they shouldn’t! The cash home buying process should be exactly like the mortgage home buying process when it comes to the meticulous warranties of the process i.e. home inspection, appraisal and title search. Those should be specified in the contract between both parts as contingencies to the deal. One of the attractions of paying in cash is the ability to skip all of the appraisal fees and closing costs, we know. But they’re worth it and, nonetheless, it will still be faster than the regular mortgage home buying process because both parties won’t have to work around the mortgage lender’s schedule to sign the paperwork. All they need to do is find a date that’s good for both, the home buyer brings in the cashier’s check, sign and done. They won’t even tire their wrists so much because the paperwork will be far less substantial than if the home buyer was financing it with a bank.
And, let’s not forget that, while when getting a mortgage home insurance is almost mandatory - because the bank needs to be sure that, should you default on your payments, they’ll have a house in good condition to put up for auction and retrieve some of their losses - when buying a house with cash, the home seller just doesn’t care what you’ll do with it. It’s your house; if you want to destroy it, it is your problem. But, hey… who wants to live in a dump? Find the most affordable home insurance you can, but have, at least, the minimum.
So, by examining the cash home buying process, you’ve probably noticed that, for the home sellers, the greatest feature of it are the quicksales, right? It’s much much faster. Plus, buying a house with cash can give you an advantage on a bidding war for a house.
But if it’s so cool, why do so many people prefer getting a mortgage instead?
While everyone does think about skipping the mortgage hassle, few actually go through with it: under 25% of the US population ends up buying a house with cash. And why is that? Well, there are actually a lot of reasons.
Fulfilling your real estate dream is wonderful, of course, but if you spend it all buying the house, you will have no money to populate it, update it, eat well and have fun. Liquidity keeps your real estate dream from becoming a nightmare and mortgages allow you exactly that: the ability to go away on a trip to relax, investing on your family’s education and not going bankrupt when the roof or the plumbing has a problem or, God forbid, a medical emergency arrives. Getting a mortgage is the wise, more sustainable choice. And because of that, because our economy is an eco-system, there are a number of first time home buyer programs and federal housing mortgage loans to make sure the community grows without disrupting the whole society with it. So, buying a house with cash should be viewed as an aggressive/advanced investment tactic and not the “natural” way to do business.
But whichever you choose, our biggest advice is to work with a real estate agent. If you’re getting a mortgage, they will have the means to guide you through the possible pitfalls and give you the fastest detours to that sweet spot you want to get to: that moment when you finally get the keys to the house and start living inside it. And, when buying a house with cash, they become even more valuable to make sure the needed safety requirements natural when getting a mortgage are adapted and observed in your home buying process so no one gets the short end of the stick. Feel free to use The Official Real Estate Agent Directory® to find the local real estate agent closest to you and good luck!