When buying a property, there are two options. The first one is to take a mortgage, where the bank will finance your purchase. But if you’ve managed to negotiate the best price, the second one is buying a home with cash.
It seems like a wise alternative to taking on considerable debt. However, this kind of purchase has its pros and cons, so let’s explore them before you decide to sell your old home and look for a new one.
Your offer will look more attractive
When the seller compares you to the other potential buyers, it’ll be easy to see that your offer comes without contingencies. Other buyers might need to sell their old homes or finalize the mortgage process and get approved.
You will seem like the most reliable buyer, as there will be no reason to worry about something going wrong with your finances. If you ask the moving team behind a2bmovingandstorage.com, they will tell you that they have seen many clients who bought homes with cash and were thrilled by their decision.
It’s quicker and easier
Not having to wait for affordability checks and approval makes the process of purchasing a property quicker. You can start looking at properties immediately since you don’t need to wait for a mortgage lender to let you know how much you’ll get approved for. Without the need to wait for the appraisal and mortgage documents, this process is faster and more convenient.
Maybe you’ve found a house in a neighborhood where good properties don’t stay long on the market. In this case, the mortgage process length might lead to you losing the house you want. Another buyer who has been preapproved can swoop in and steal your dream home. However, an all-cash offer ensures this will not happen.
The existing mortgage won’t complicate the deal. The buyer who is already having a mortgage might not qualify for a new one. This is not a problem with an all-cash purchase.
You will avoid fees and interest
Unless you pay with cash, you’ll have to pay an interest rate. Even though the interest might not seem very high, it’s still a cost that you have to pay during the life of the loan. Actually, mortgage interest can add up costing hundreds of thousands of dollars, potentially doubling the cost of the home in time.
Moreover, mortgage insurance is a part of home financing if the down payment is lower than 20%. Paying in cash helps you avoid that cost.
There are other costs that this type of purchase involves, such as closing costs, origination, document fees, appraisals, etc. Inspection and title costs are additional expenses that you will need to pay. Moving to a new home is an expensive business.
So, you will want to avoid any surprise expenses. And the best way to do that is to have your relocation process led by reliable Maryland moving professionals. It’s common knowledge that trained people can help you avoid unnecessary moving expenses and tell you exactly what you can expect. It will allow you to plan your budget accordingly.
Buying a home with cash ties up your money in one asset
From the perspective of investments, this means that your money will be invested in only one type of asset class. It brings more risk, as it binds you if the real estate market goes down at some point. It’s reasonable to expect a real estate market to recover over a more extended period of time. However, diversifying your assets might be a good option. Investing in multiple assets lowers the risk, as you won’t solely rely on residential real estate.
Besides this, having all of your money allocated for your new home means that you’re less likely to make other investments. If you have the money and an investment opportunity arises, you’ll be able to take it. This flexibility could be considered an advantage in case of sudden appealing market conditions.
The mortgage tax deduction is not an option when buying a home with cash
One of the prevalent financial incentives is a significant tax deduction from mortgage interest. Of course, you wouldn’t opt for a mortgage for the reason of saving on taxes. However, reducing tax liability does make mortgage payments a bit less painful. If you pay home in cash, you obviously won’t be able to get this advantage. On the other side, not paying for mortgage interest in the first place is already an advantage.
You lose on the homestead exemption
Homestead exemption can protect the equity in your home from your creditors if you happen to get in a bad financial state and owe a lot of debt. Keep in mind that the protection limits are not for your home value but the equity in the home. The exemption amount depends on the county. It can go from $85,400 to $170,825 in certain counties.
If the equity in your home is less than the protection limit, no one can force you to sell your house. However, if you bought the property with cash and owned the home right away, this wouldn’t apply.
It limits the liquidity
Paying a great deal of money upfront means that you will lose a lot of liquid assets in cash. That’s why buying a house in cash should only be an option if you have money left for emergencies.
The seller might not be ready
Without mortgage delays and contingencies, cash offers usually close faster. While this is typically an advantage, it can be challenging if the seller is still not ready to move out. It can put a seller in an uncomfortable position. On one side, they want to sell the property; on the other side, they didn’t expect it to happen so quickly.
There’s no contribution to your credit score when buying a home with cash
There’s a psychological and financial hassle involved with the mortgage, and that’s certain. However, these contributions can benefit your personal credit. A long history of timely payments positively affects your credit score. An all-cash home purchase doesn’t bring a benefit of this sort.
Even though you’ve got the price you wanted and needed, buying a home with cash might not be the best option. Consider the advantages and disadvantages carefully, and try to make an educated decision that will not overstretch your budget.