Buying a home in cash means you have to come up with a lot of money at once. Does it make sense to part with hundreds of thousands of dollars at once? Or should you take out a mortgage and gradually earn ownership in the home?
Both scenarios have advantages. If you have the money, though, paying cash definitely has its benefits. Read on to learn how you can benefit from buying your home outright.
Negotiate a Lower Price
Sellers in a hurry to sell their home may be willing to cut you a discount. The fact that they don’t have to wait for your bank’s approval is worth its weight in gold. Financing can slow down the purchase process by weeks, or even months in some cases. If the seller knows they can close on the desired date without worry, they’ll usually jump at the chance. This gives you greater negotiating power, allowing you to pay a lower price for the home.
Pay Fewer Closing Costs
Closing costs can easily add up to 6% of your loan amount no matter which lender you use. On a $300,000 loan, you could pay as much as $18,000 in closing costs. This is separate from any money you put down on the home too.
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Cash buyers don’t have nearly as many costs to pay. There aren’t any lender fees to pay, which can save you a lot of money right there. A sampling of the costs you may avoid are:
- Origination fees
- Discount points
- Underwriting fees
- Application fee
- Credit reporting fee
- Escrow fees
You also won’t have to set up an escrow account for your real estate taxes or homeowner’s insurance. This can save you thousands of dollars.
In fact, you won’t even have to pay for an appraisal. Mortgage lenders require an appraisal to make sure the home is worth enough for them to fund a loan. When you pay cash for the home, the risk is yours. It’s up to you if you want to pay for the appraisal or not. They often run around $400.
Lastly, you won’t have to buy title insurance, at least for the lender. When you take out a mortgage, you are required to pay for title insurance to protect the lender against any issues regarding ownership in the future. Most buyers also purchase an owner’s policy. It’s up to you if you want to pay that expense though.
Win a Bidding War Faster
Sellers often pay more attention to cash buyers than those with a mortgage. As stated above, financing can slow the process down or even kill it altogether. When you pay for the home yourself, you don’t have those worries. This can work in your favor if there is a bidding war on the home. When several people want the home, they will often do whatever they can to sweeten the deal. This usually means outbidding the other buyers. But sometimes money doesn’t do the trick. You may even bid a lower amount, but offer to pay cash. Sellers often jump at this opportunity.
The Home Costs Less
No matter the actual cost of the home, you’ll pay less for it over time. If you take out a mortgage, you pay interest. Let’s say you take out a 30-year loan, that’s 30 years of interest. This could mean thousands and thousands of dollars that you save.
You Can’t Lose the Home
Finally, when you pay cash for a home, it’s no one’s collateral except your own. There isn’t a lender that can take the home from you. When you take out a mortgage, your home is collateral. If you miss too many payments, the lender can start foreclosure proceedings on your home. When you pay for the home upfront, though, there aren’t any worries of this happening.
Paying cash for a home isn’t for everyone. Obviously, you need a lot of money to do so. If you have it though, it can benefit you now and in the long run. If your money is sitting in an account not making very much interest, it may make more sense to pay for your home all at once. This way you have 100% equity in the home. Should something happen down the road, you could sell the home and get your money. It’s a win-win situation for you!