Many people hoping to buy a home tend to struggle to demonstrate their creditworthiness to lenders. Some families may find a mortgage lender willing to lend to them, but still have trouble putting enough together for the down payment. It’s understandable that they would have trouble borrowing — convincing a lender that you’re worth a £100,000 bet is no small matter. Yet, amid all these poor, struggling souls is an increasingly large group of homebuyers that comes in ready to write out a check. They have all the money needed in hand.
These people get into their enviable position often through having sold a previously owned house. Others are flush with funds from having just retired. Homebuyers who have the cash like the idea of not having to wrestle with uncooperative mortgage lenders too — getting the sale over with and getting on with their lives seems an attractive choice.
In truth, though, it makes sense to ask yourself whether you should pay cash to buy a home outright. The answer isn’t always what you might expect it to be.
Why get a mortgage when you have cash?
A home purchase turns liquid cash into an illiquid home. While it’s easy to plunk cash down to get a house, the asset cannot be turned back into cash, should you experience an emergency need. If you’re past 60, it can be difficult to find a lender willing to take your house and give you a second mortgage on it too.
Paying cash may lose you money. The current mortgage rate in Britain hovers around 1%, the lowest level ever on record. Even simple term deposits in good, safe banks are able to pay much more. If you put money in investments that provide a higher rate of return, you’d make better returns. For some, it makes financial sense to get a mortgage, and to invest the money you have in hand.
There are definite advantages to paying cash
The advantages are easy to understand, foremost among them being the fact that when you pay cash, you obtain greater negotiating power. It isn’t uncommon to see good real estate buying agents lower prices by as much as 2%. According to Russells Lettings real estate (contact Russells here), you also save money on closing costs, title insurance, and bank appraisal costs. Best of all, you have a greater chance of getting the house you want; when you pay cash, homeowners will usually choose you over everyone else.
Finally, there is the emotional reward of knowing that since you own your house, you simply don’t need to deal with banks and lenders.
Buying with cash is far easier
Find a buyer’s agent. Once you are sure that buying with cash is the best deal for your situation, you should begin researching the advertisements and listings for homes, and also get in touch with a real estate agent. Unless you are an ace with negotiations, you will usually need an experienced and talented buyer’s agent to use the cash leverage that you bring to the deal to aggressively seek a lower price. Going in with an agent is also essential when it comes to choice. Most homes are listed by agents, and they will usually refuse to deal directly with an end consumer.
Request your agent to arrange for an appraisal. An appraisal helps you ensure that the house you have your eye on is indeed worth the asking price. Once the appraiser agrees that the price is fair, you can go ahead and can ask your agent to make a counteroffer to try to arrive at an even more competitive price point.
Make sure you use an escrow agent. Rather than simply hand over a check for the funds and wait for the other party to make the deed out in your name, it makes sense to protect your interests to the very end. Make sure there is an escrow agent involved who will only hand over the funds to the seller once the title is made out to you. You need to make sure you bring in a real estate lawyer to scrutinize the papers as they are drawn up. You get a chance then to make sure that buyer protection clauses are added for the possibility that major shortfalls in construction quality should turn up after the sale.
Cash can make the purchase process much easier, and it can mean a great deal of peace of mind for the buyer. A cash purchase is an experience worth going for.
Isobel Bolton has built up a property portfolio and understands the complexities of investing with cash or raising finance to buy bricks and mortar. She is a regular online contributor for a number of property investment websites.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.