Buying a home with cash has many advantages. Its primary appeal being once you hand over the money, it’s 100% yours, no mortgage or debt attached.
In theory, you may think paying cash for a house is a simple process. In many aspects, it is, as there is no back and forth with lenders waiting on a loan approval for example.
However, while a lender-free transaction is a much smoother process, there are certain considerations you should make if you are planning to pay cash for your new home. Will you have the funds left over if it turns out the house needs major repairs? Or if other unexpected expenses pop up, can you afford it with all your money tied into the home?
Ultimately, only you can decide if paying cash or financing your new home is the best option for you. In an ideal scenario, you want to go with the path that gives you the most value for your money in the long run.
Here are five tips for a better-informed experience when paying cash for your new home.
1. Say No Thank You to Lenders and Interest
Paying for a home in full upfront guarantees no matter what the temperament of the real estate market or the economy is, the home is all yours. There is a level of comfort in that realization. Remember, paying with cash eliminates lender fees and interest, but you will still have ongoing expenses after they hand the keys over, such as homeowner’s insurance, property taxes and homeowners association fees (if applicable).
As you are shopping around for your new home, keep those monthly expenses in mind, and be sure you can afford the monthly payments. Certain areas may be prone to both higher property taxes and steeper insurance premiums. You don’t want to put yourself in a bind by risking it all on missed property taxes or having no insurance coverage because of skipped premium payments.
2. Cash is King
Home buyers paying with cash are ideal customers for both real estate agents and homesellers. Your biggest superpower is eliminating both the seller and real estate agent’s concerns that you may put an offer on the house to have the financing fall through, which makes you even more appealing over other buyers who need to finance.
You also come to the table with less baggage, no time spent gathering paperwork or waiting on lenders for closing. The appeal of a “no-hassle,” faster closing may give you the potential to win even with a lower bid.
3. Consider all the Numbers
Make sure to include closing costs when pricing homes. There is no way around paying for certain fees associated with buying a home. Closing fees include title transfers, inspections, appraisals, processing, and real estate agent fees.
When putting an offer in on your dream home, you will have to prove you have the required funds in hand. Generally, your financial institution can provide proof of this with a letter or in some situations a bank statement will work.
4. It’s Not All Roses
Before sinking all of your money into one purchase, there are a few disadvantages to consider. If you are putting all of your hard-earned savings into buying a new home, ask yourself “If an emergency comes up, will I have the funds needed?” Eliminating monthly mortgage payments and interests are ideal, but if you can’t afford life’s curve balls, you may want to reconsider paying the full purchase price in cash.
Instead, consider putting a significant amount towards the down payment. This will lower your monthly mortgage payments but will give you a sizeable cash reserve if something major were to pop up.
5. Partner with a Professional
If you are mulling over if paying cash for a new home is the best option for you, consider partnering with a local, knowledgeable real estate agent. An experienced agent can guide you along the home buying journey to the best purchasing decision by using their extensive market insight, allowing you to get the most bang for your buck.
Clever Partner Agents can help you find and vet prospective properties, as well as draw up the paperwork, offer letters and negotiate with homesellers on your behalf. Not only are they the top performers in their local market, but when you choose to work with a Partner Agent, you could receive a Home Buyer Rebate up to 1% of the purchase price of your new property. When you buy a home with cash that returns on the purchase price can be used for insurance payments or back into your savings.