SHOULD A BUYER PAY CASH FOR PURCHASING A HOME?
In the United States, 38.1% of home sales were all-cash deals in November 2015, based on a RealtyTrac data. The data provider attributed the increase to new requirements and disclosure rules for mortgages which were implemented last year.
The following are the upsides of paying cash for the dream house of yours.
Making you an appealing buyer. Real estate agents prefer buyers who do not plan to apply for a mortgage. The mortgage process is daunting and time-consuming. And in case the lender rejects an applicant, the deal won’t proceed and the seller needs to start all over again. Having the capacity to pay cash not only gives you an advantage with sellers, but also helps sellers in the industry scrambling to score the best deals.
Obtaining a better deal. Paying cash places you in a good vantage point to bargain. For sellers, the sooner they get the money, the sooner they can utilize that cash.
Enduring not the process of securing a loan. Mortgage application entails submitting more documents. Although a prudent step on the creditor’s side, this task means more time and exasperation for applicants. On the other hand, buyers have no choice but to pay money as they cannot get a loan.
Sleeping better. If you value peace of mind a lot, repay your mortgage as early as possible or pay cash for your house. That approach is most applicable in retirement. A Federal Reserve data showed several financial advisors notice some psychological benefit in retiring with no debt.
However, here are the downsides.
Sacrificing liquidity. Majority of bank accounts have high levels of liquidity, which means a person can withdraw cash almost swiftly. Brokerage accounts and mutual funds can take somewhat longer. However, a house take months to sell. One can borrow against the equity in your house. However, it has corresponding fees and borrowing limits.
Storing more money in an asset class. If purchasing a house upright involves most of your savings, it defeats diversification. Looking at the return on investment, numerous studies reveal residential real estate has plunged. Financial advisors often tell their clients to think of their abode as place to live rather than a venture.
Losing the financial leverage. The possible return is higher when a person purchases an asset with borrowed money, presuming the asset surges in value. Conversely, if the house drops in value, one can lose more money. It is fine if you intend to stay. But you could find yourself owing more money to the creditor if you have to move.
These are the pros and cons of paying cash in buying a home. Depending on your financial situation, the decision is yours if you should or should not enter an all-cash deal.
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