Most of the time, many people do not buy houses with cash and rely on mortgages to fund home-buying projects. The main reason for this is that homes cost huge amounts, which may take longer to save for. Some people, especially the employed ones, can also easily access home loans. The loans are guaranteed by their employers and the title document for the home also acts as collateral.
Paying for a home with cash is a better option, which you can go for if you can afford it. It has its advantages and disadvantages, but it would require the buyer to know how to negotiate well and avoid putting themselves in a crisis later. They must also ensure that they get the most out of it.
Advantages of buying a house with cash
People who are buying homes with cash are more likely to enjoy better prices because the seller is willing to lower the cost a bit. This is because the buyers will not take long dealing with lenders or seeking to secure loans using the home title.
Since there are no mortgage documents and other paperwork involved when buying with a loan, buying a house with cash has less paperwork at the point of closing the transaction. As a result, administrative fees tend to be lower.
Mortgage application, approval, and closing of the home buying process take time, slowing down the transaction. With a cash purchase, the process is faster since the funds are available.
If you are selling your home to use the proceeds to buy another home, you can easily realize how to buy a house with cash is beneficial by selling your home as it is to fetch some money fast and close the other deal.
Disadvantages of buying a home with cash
Risky due to fewer checks
When buying with a mortgage, the lenders have to survey and scrutinize the property well to be sure it’s worth lending money against it. The surveys may take time and increase the house’s cost, but it also safeguards the buyer. With cash, the checks are fewer, which puts the buyer at a higher risk.
Loss of liquidity
The amount spent to buy a house is quite huge, and the buyer needs to have budgeted well to ensure that they can afford it plus their other living costs. If they do not plan well, they could find themselves in a crisis.
How to go about buying with cash
If you are sure that buying with cash is the best option for you, you can go ahead and close the deal. But it would be best to have between 3 to 6 months of your living expenses saved in an emergency fund. You also need to consider the source of cash because it could increase the home’s total cost. For instance, withdrawing money from a retirement fund could lead to tax implications, raising the house’s final price. You also have to ensure that you have adequate cash to cover homeowner’s association payments, insurance amounts, and other home-related costs.
When you have identified the home to buy, arrange for a licensed home inspector to inspect it. Although it’s not mandatory like when using a mortgage, it’s vital to ensure that the house is in good condition. Also, make the arrangements for a title search, survey, and title insurance policy. On the agreed day for closing the sale, you and your agent, the seller, and their agent need to be present. It would be best if you came with a bank check for the total amount of the house, but not cash in a briefcase or a bag. You may also wire transfer the cash.
Buying a house with cash can offer many advantages, but it also has its disadvantages and risks. As you do it, ensure that you do your proper due diligence, plan well, and make sure that you maximize your benefits from it.