Buying a House: The Difference Between Paying Cash or Getting a Mortgage
Buying a house with cash isn’t a bad idea but it might raise some eyebrows since most people don’t have $400,000+ just laying around. With so many people struggling just to save up 10% for a down payment. There are others who have the cash resources to pay for a home without any mortgage assistance.
Does the question become for those who have the finances available whether they should purchase a home with cash only? The answer lies in making the best-informed decision that takes into account. The advantages and disadvantages of using cash to make the purchase.
For those who are considering using all cash to buy a property. You will want to take as much into account as you can before you make the purchase. And is it a good idea to buy during the COVID-19 pandemic?
What Are the Advantages of Buying a House Cash?
You’ll Get a Better Deal: There is something about a buyer who has cash that makes every deal seem better. This is true in practically all industries as well as real estate.
Having cash in hand means that you are in more control of the terms of the deal. Therefore, the seller knows you have the money to pay immediately.
No Mortgage Hassles: With the tightening of regulations since the 2008 housing crisis. It is more difficult to get a loan now than before. With the number of documentation needed to be combined with the slow speed of the process. Cash seems to be a much better option since the sale can be closed faster and with far more confidence.
Sellers Like You More: While your good looks and personality may play a role. Most sellers will be more interested in your bid if you do not have to go through the mortgage process. Sellers understand that there are considerable hurdles involved in getting a loan even with good credit. However, having the cash available means that they can skip that process and get to the details of the sale itself.
What Are the Disadvantages of Buying a House Cash?
Despite all the advantages that cash has to offer, there are some issues that you will need to be aware of before you decide to make the purchase.
Singular Investment: The phrase “don’t put all your eggs in one basket” has real meaning when you put most of your capital into a single property. If you are purchasing the home as an investment, then you should consider that unless you are getting the property for bargain-basement prices. Your return will be lower than other, more popular forms of investing.
Lose Leverage: One advantage of a mortgage is that you actually can get a higher return than with cash if the property rises in value. Put simply, paying for a home that rises significantly in value with cash means a lower return on investment. Since you’re putting more of your own money into the property.
While there are additional payments with mortgages, the bottom line is that you will not get as high a return with a cash purchase.
Lower Liquidity: By tying up most of your money into the home. It takes longer to get it back compared to other popular forms of investment. While you can pull the money from brokerage accounts and mutual funds fairly quickly, it can take months to sell a home. Keep all of the advantages and disadvantages in mind before you make the decision to purchase a home with cash.