The Advantages of Paying Cash for Your New Home

Purchasing a home by paying cash has some distinct advantages. Buying a home to live in or use as a rental property can be a great investment. If you are able to pay the purchase price outright with cash, the profits begin when closing takes place. Some of the advantages are as follows:

• An obvious advantage and probably the main one is that there will not be a mortgage on the property. By not paying a monthly mortgage payment, immediate equity in the property is realized. The owners see immediate results by not having a large monthly payment.

• Sellers love all-cash offers. They are more apt to accept an all cash offer over an offer that requires the buyer acquiring a conventional or government subsidized loan. Many intricacies can pop up during the loan process. For instance, the buyer may not qualify for a loan; the house may not pass inspections, or any of a number of other circumstances. These issues will not only delay the closing process, but could cause the entire sale to fall through.

• With a cash sale, there is usually no appraisal contingency. Most appraisals are based on relying on comparable sales. By choosing three similar properties, adjusting the price based on the different property amenities; appraisals are an average of the sales price. If the home does not appraise for the purchase price the buyer may be required to put more money down or the buyer will have to adjust the price down to the appraisal value. Appraisal/purchase price difference can result in nullifying the sale contract.

• The closing process can take place quicker. If the sale is an all cash sale, the buyer does not need to wait 30-60 days to close while waiting for final loan approval. The sale can close once the home inspection and other contingencies have been satisfied. A streamlined closing is advantageous to the seller. Closing can even take place in as little as 7 days.

• Market fluctuations do not matter. The real estate market can be volatile. Home prices can go up or down during a thirty-day period. If the fluctuation in the market price falls, the appraisal rate will also go down, making a loan for the purchase price difficult to get. If the loan contingency is not met, the sale is at high risk of falling apart.

• Closing costs are lower with cash. Added fees for a bank attorney or mortgage broker are not necessary. This is about a $750 fee. Add to that $300-$600 up front for property taxes deposited into an escrow account. There are no loan origination fees or other lender fees assessed on buyers who take out a mortgage to purchase a home.

• Title insurance will not be required. Title insurance protects mortgage brokers, banks, and buyers, from problems with previous issues with ownership, property liens, or back property tax liens. Title insurance varies, but on average runs $1,000 to $2000. An all cash buyer can still purchase title insurance and it is wise to do so. However, the cost of title insurance when no lender is involved in the sale is about one third less.

The ability to pay all cash to purchase a home has definite advantages. Sellers may even take less than the asking price to a buyer that makes cash offer. Overall, few people can afford to pay this way, but for those that can the upside for both buyers and sellers are numerous. Depending on the property itself, or whether or not the property is a fixer upper, immediate equity appeals to everyone. By not having to pay a monthly mortgage payment, the purchaser can save thousands in interest payments. All cash sales will result in an easier sales process overall.

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