shows that about 30 percent of residential sales are cash transactions.
(In Florida the stats are much higher, more like 60% of recent sales) Among investors and international buyers, more than 70 percent of
properties are bought outright. If you can afford to buy up front, the
advantages are many:
- Sellers are likely to favor buyers who can pay in cash.
- The home price may be reduced for those who pay in full up front.
- All-cash purchases streamline the home-buying process: No loans means less paperwork and no delays for mortgage approval.
- Cash buyers can save money on closing costs, bank appraisals, mortgage applications and fees, title insurance, and so on.
- Cash purchases eliminate the risk of loan denial.
- Cash buyers pay much less for their homes in the long run: No loans means no interest.
- Cash buyers never have to worry about losing their homes because they can’t afford to repay their mortgage loans.
- Cash buyers gain full, immediate equity in their home.
Sellers prefer cash buyers
Home sellers generally prefer quick, smooth sales. They know that even
buyers who have been preapproved for mortgages might be denied by the
lender later on. For example, a buyer who is an independent contractor
might have difficulty proving two years of regular employment, or a
buyer depending on a family member for a personal loan might later opt
out (or the relative might). Therefore, when possible, sellers prefer to
steer clear of buyers who have to apply for a mortgage. If you are
buying with all cash, you have greater negotiating power on price,
closing time, repairs, and more. Sellers are often willing to reduce the
house’s price for cash buyers.
Cash purchases avoid the risk of low appraisals
Home appraisals are notoriously fickle. Lenders determine a home’s worth
by weighing it against comparable sales — other homes in the
neighborhood that may have sold at low prices for unknown reasons. A low
appraisal could lead the lender to reduce the amount of the loan offer,
even after seller and buyer have agreed on a price. If the loan amount
comes up short, the buyer often cannot afford to buy the home. All-cash
buyers sidestep mortgage applications, avoiding the need for a
potentially deal-breaking home appraisal.
Cash purchases save money and time
Indisputably, cash purchases carry lower costs. Mortgage interest on a
30-year loan can double or triple the original purchase price.
Additionally, closing costs are significantly lower when purchases are
made with cash. Cash purchases also save buyers valuable time,
eliminating the need to gather elusive documents and search for the
optimal lender.
Peace of mind is priceless
Most importantly, all-cash purchases bring an inviolable sense of
security. Owning your home outright means never having to worry about
covering your mortgage. In the face of disaster, such as job loss or
injury, full ownership eliminates the risk of losing your home to
foreclosure. Moreover, if you have paid cash, you will have excellent
equity in the house. In case of financial emergency, you can draw on
that equity for quick cash.
Figure out how to pay in cash
Buying your house with cash might seem like an impossible dream. Here are some tips to help you achieve it:
- Set aside unexpected windfalls, such as work bonuses or inheritances.
- Lock money in a long-term CD to earn interest.
- Once you have accrued cash, look for a house you can afford without borrowing extra money.
- Consider moving to a less populated area, further from a big city, where home prices are likely to be lower.
- Avoid the temptation to waste money. Tell your friends and family
about your goal of buying a home; they will help keep your spending on
track.