The housing market is hotter than ever and some buyers are looking for any edge that they can get. One of the best ways to make your offer stand out to a prospective seller is to make a cash offer for their homes. With no questions about lender availability and the promise of a quicker closing, such an offer is always attractive to sellers.
With that said, a relatively small percentage of would-be buyers can make a cash offer. This small group of buyers is able to take advantage of the main selling points of paying for a home in cash – a lack of future debt, a firmer foundation on which to negotiate a price, and even the feeling that comes from owning a property outright. With that said, though, there are some very real issues that come from trying to buy a home with cash.
The downsides to buying in cash
One of the biggest reasons to avoid a cash offer is that paying for such a massive expense in cash is going to quickly deplete your liquid funds. If you’ve got barely enough cash on hand to cover the purchase, you’re losing the ability to pay for all of the other necessities of life. Though you might be able to replenish your funds, you’ll still put yourself in a dangerous financial situation during the short term.
Likewise, paying in cash also makes it impossible for you to take advantage of a relatively inexpensive loan. Given that you might have all the money you need on-hand to buy a house, there’s no reason to avoid putting down a sizable down-payment in order to get a low-interest mortgage that doesn’t require private mortgage insurance. While the costs might be higher over the course of your loan, the negligible difference is often worth the convenience of having more cash available.
That money you keep available also might be better used for other types of investments. If you’re buying a primary residence, for example, you’ll almost be certain to make back more money than you’ll spend on your mortgage simply by investing it wisely over the next thirty years. In fact, having enough money to buy a home outright means that you almost certainly have enough available to make the kind of investment that could put what you might save in interest to shame.
The benefits of buying with cash
While those are some significant downsides, it’s impossible to overlook the fact that you will be able to buy a home without having to deal with a lender. This means that not only will you avoid paying interest on your mortgage, but you’ll avoid all the fees involved with getting a mortgage – including the fees assessed at closing. Buying a home with cash also means that you get to close faster and move into a home with much less fuss, a fact that makes the entire process worth it for some.
Deciding which option works best for you
So, how do you decide whether to buy a home with cash? Simply put, you need to figure out if you fall into a category that makes a cash offer make sense.
Buy in cash makes sense if you have the money available and want to make your offer stand out. It also makes sense if you need to close quickly or you have a desire to avoid mortgage payments. Cash offers also make sense if you’re looking to sell in the near future, as you’ll be in a position to make a bigger profit from your sale.
A mortgage obviously makes more sense if you don’t happen to have cash available to you. It also makes sense if you would be more comfortable keeping more cash in your account, if you have a limited amount of savings, or if you feel confident in your ability to pick good investments. You may also want to consider a mortgage if you’re considering the tax consequences, as well as if you simply feel safer working with a lender to cover the cost of a home.