Although your friends might look at it differently, having enough money to pay cash for a house has nothing to do with luck. You probably didn’t catch a windfall in the lottery either.
It doesn’t matter how you did it, you have cash, something the average person can’t hold onto for more than a payroll cycle. Now, you’re thinking about buying an investment property (or your dream home).
Are there any benefits to paying cash for a house?
That’s a resounding yes!
Cash buyers enjoy multiple benefits (and so do sellers). Here are a few.
Cash Buyers Have Power
Cash is king at the negotiating table! If you have the financial statements to back you up, many sellers will take your offer over a buyer who comes in with a pre-qualification letter from a lender.
Financial statements like a bank statement or proof of funds letter can motivate a seller.
Cash could get you a lower sales price and certain other favorable terms. If other investors are hot on the trail, cash makes you a more competitive player.
Overall, a cash buyer has more leverage with the home seller and their agent.
Sellers Like Cash
We mentioned how sellers often accept a cash buyer’s offer over one from a traditional home buyer. It’s because cash offers come up against fewer obstacles. Sellers want to get to the closing table, and they know a cash offer is more likely to close.
Certainly one fear of home sellers is the denial rate for mortgages but that’s not the only thing to prevent closing.
Properties sold to buyers applying for traditional financing must go through an appraisal before closing. Lenders require an appraised value of at least the amount financed. If a home doesn’t appraise to the lender’s satisfaction, the seller must come down on the price, or the buyer must increase their down payment.
Cash removes the lender from the equation. The seller doesn’t worry about financing falling through. There’s also no need for an appraisal.
You Always Qualify
Have you ever talked to someone who qualified for a mortgage—until a few days before closing? It happens!
Due to loan contingencies, a fully qualified buyer can end up without financing.
Buyers applying for certain types of loans often discover the home they want doesn’t meet the lender’s standards. For example, a lender may require certain repairs to approve the loan. If the seller and buyer can’t agree on repairs, the transaction could fall through.
In another situation, a buyer’s qualifications change before the loan closes. Sometimes a buyer makes the mistake of incurring debt prior to closing and it changes their debt-to-income ratio(DTI). Any number of situations could cause a denial of financing.
When you have cash, you bypass the entire mortgage application and approval process.
No Credit History Needed
If your credit score is low, you can still buy a home when you pay cash. In fact, with cash in your pocket, you don’t even need a credit history.
Of course, buyers with low credit scores can qualify for mortgages too but it’s more difficult to qualify. When you have low credit, you’ll need a higher down payment and a lower DTI.
And then there’s those who avoid credit cards and car payments like the plague.
If you’re that person who doesn’t have a credit history but has a boatload of cash, you may run into problems obtaining funding for your dream home or investment property. You’re an ideal candidate for buying your home with cash.
Paying Cash for a House Take Less Time
If you’re in hurry to move into your new home, cash might just put the keys in your hands faster.
When going through the conventional mortgage process, you can expect it to take about 30-45 days. Some transactions take even longer if things come up like a negative appraisal or inspection report.
When a seller looks at house buyers or cash house buyers, time is a motivator. You cash sale will take less time, which is attractive to you and the seller
A cash home sale could close in as little as 7 days. Yes, we said 7 days! Of course, that’s after your new home passes inspection and you meet any other contingencies.
This is one reason sellers like cash buyers—they get the money in their pocket sooner.
You Are the Only Owner
If you’ve never owned a home free and clear, you should. For one thing, you won’t experience mortgage stress (yes, there is such a thing).
Psychologically, there must be some benefit in knowing you own your home. No one can take it away, at least not through foreclosure. That means you’re not stressing over the sheriff showing up your door with paperwork.
Owning your home should also mean you free up a nice chunk of your income. Then, you’ll have more to pay down other bills. Less stress, right?
Finally, knowing you, not the bank, or some private money lender owns your home and you can do whatever you want with it, provided you’re not breaking the rules of the municipality where you live.
Who Wants a Mortgage Payment Anyway?
Even if you’ve paid rent for all your adult life, a mortgage is different.
A lease you can get out of a lease without too much trouble. Sure, you may pay a fee for breaking the lease but at least you can walk away. A mortgage—not so much.
Unless you default on the loan and the bank forces you out, you’re obligated to pay that baby every month, unless you sell your home.
Guess what else comes with mortgage payments? Private mortgage insurance (PMI) and title insurance.
The Power of Equity
You’ve likely heard that building equity is a huge part of homeownership. When you have a mortgage you don’t have as much equity in your home as would if you owned it outright. We know, that’s a no-brainer, but look at it this way.
When you pay cash, you have 100% equity. Let’s say you make some improvements. Maybe you plan to sell the home or rent it out for a while.
You assume the value of the property increases after your improvements and continues to go up over time. When you’re ready to sell or rent, your home should have more value than when you first purchased it.
Whatever profits you make, whether by selling or renting the home, those profits belong to you. No mortgage to pay off and take part of your hard-earned equity.
How Does Risk Free Savings Sound?
When you pay cash for your home, essentially, you put money into savings.
Let’s say when you buy your home the going rate for a mortgage is 4%. You’ll never see the money you pay for interest again. Even if you sell the home for more than you paid for it, you don’t get the interest back.
Paying cash means you’ll save that 4% and you’ll save it risk-free. Here’s how it works.
Think about what your other investments payout. Your home is an investment too. If your mortgage interest rate is higher than what you make on your other investments, paying cash saves you the amount you’re paying in interest.
On the Flip Side
Maybe you’re the seller with a cash buyer who falls in love with your home. Aren’t there benefits for you too if you accept the cash offer? Another resounding yes!
Some of your benefits match the buyer’s benefits.
As a seller, you want this done as quickly as possible. Your cash buyer almost guarantees a quick closing. You won’t lose sleep worrying about whether the buyer’s financing might collapse at the last minute either.
In some cases, a cash buyer won’t dicker with you over repairs. Cash buyers are often willing to buy a house in as-is condition. Be aware you might not get your asking price, but you won’t deal with the hassle of repairs.
Finally, selling a home to a cash buyer puts more dough in your wallet. Cash sales usually don’t come with realtor fees and other closing costs. You get to keep the profit!
Ready to Take the Next Step to Homeownership?
If you’ve saved enough cash to buy a home, congratulations! You’re in the minority compared to the average person who wants their own home.
As you can see, paying cash for a house comes with many benefits. Cash means no mortgage. No sleepless nights worrying about foreclosure.
We’ve highlighted only a few benefits of owning a home outright. You can likely come up with a few more. Either way, best of luck taking that next step of owning a home without a hassle.
If you’ve enjoyed reading this post, come hang out with us a little longer. We have a ton of great articles in the archives we’re pretty sure you’ll enjoy reading.