Purchasing a residential property with cash is an attractive option for home buyers. However, if they opt to pay cash for houses, knowing how to do proper negotiations is a must. Also, shelling out a significant amount of money right off the bat could be worrisome. Thus, homebuyers must know that the property is worth it.
Paying cash for a house is attainable and doable – only if you have adequately saved towards buying a home. It’s also wise to go this direction if you’re absolutely sure that you won’t be putting yourself in any problematic financial standing.
If you are strongly considering paying cash for houses, please read our smart tips and suggestions.
When Should I Pay Cash for a House?
The straight and short answer is when you have the money. Sellers who pay with cash upfront are looked at more favorably and satisfactorily by realtors and buyers. Compared to non-cash buyers, they are more likely to close a deal on the property they desire.
In a majority of cases, when you pay cash for houses, you can avoid mortgage payments. In contrast, homebuyers who don’t pay with cash are committed to mortgage payoffs for the next 15, 20, to 30 years – which is a significant amount of time.
There are other benefits to paying cash for a house. According to the Wall Street Journal, homebuyers who pay cash for houses don’t have to meet the requirements of lenders – or even have to deal with lenders at all. Additionally, the Wall Street Journal reports that buying a property in cash substantially reduces administrative fees and additional paperwork required to close a deal.
What Are the Disadvantages?
On the other hand, paying for houses in cash also comes with its own set of disadvantages. You need to know this firsthand before you make any significant decisions. The most significant problem would have to be not being able to get the cash back – no matter what happens. Once the money is out of your hands, you can’t re-access it for any other reasons.
If you find yourself in a difficult financial situation or if you or someone in your family succumbs to sickness, or if you experience any money-related issues, you have to be sure that you have enough funds set aside for those expenses. Retirees or other individuals with no steady financial resources may find it challenging to get a loan or mortgage.
I Have Enough Cash. What Do I Need to Do to Buy a House?
If you do have enough money to ultimately pay for a house, the first step is to set aside how much exactly you’re willing to allot for this expense. This is the same mindset with other purchases. Determine the amount you can afford – what your budget is. Aside from the actual cost of the house, you also need to factor in any monthly utility expenses or repair costs as needed.
For instance, if you’re able to allot $300,000 for a property – don’t find a house for sale that is sold for that same exact amount. Don’t put all your money towards buying the property. Keep some set aside in case of a financial emergency.
The Value of a Property
Consider the value of the property you’re considering over time. Also, you need to think about the time value of your money. This is an real estate investment concept. This means that the value of the home will eventually change. This lets you understand how much the house will be worth in the future – factoring in inflation and interests.
On top of the cash, you’re ready to devote to buying a house, you should also evaluate these factors:
- Your monthly and yearly income
- Your liquid assets. These liquid assets should cover at least six months of your expenses
- If you have any current or future financial responsibilities
Furthermore, having the money to cover the cost of a home is not enough. To secure your financial standing, make sure you have adequate health and life insurance set up.
Close That Deal
Buying a residential property is always going to be a daunting process. Whether you’re paying cash for houses or getting a mortgage, you need to know which option best suits your situation. This way, you can close that deal, sit back, relax, and enjoy your new home.