Should you buy property in cash? It’s a great question. Why would you have a mortgage if you don’t need one? Let me break down the pros and cons of buying property in cash. What should you be doing as a UK property investor?
According to the National Association of REALTORS® 2022 Profile of Home Buyers and Sellers, 87% of recent home buyers financed their purchase by taking out a loan to pay for it. But if you have the cash on hand, making a cash bid on a house could seem like the wisest course of action. Here are some things to consider if you’re considering entering the real estate market as a cash buyer.
What is a property cash buyer?
A cash buyer is someone who can purchase a property without using a mortgage or to sell another rental property to pay for it. Contrary to popular belief, being a cash buyer does not necessarily mean they are not in need of a mortgage. Even if you don’t require a mortgage, you won’t be considered a “cash buyer” if you need to sell a property to pay for another acquisition.
Should you buy a property if you can afford to do so with cash?
Cash property purchases are becoming less prevalent, especially as house price increases outpace income growth. Even the most diligent savers may find it challenging to gather enough money to purchase their home entirely at the current median home sale price of nearly $428,000.
Pros Of Paying Cash For A House:Â
Here are a few benefits of paying cash for a home that you might want to think about.
1. Cash Buyers Are Frequently More Appealing To Sellers
Being a cash buyer can provide you an advantage over buyers who want to mortgage their purchase in a competitive market.
Because they don’t have to worry about a buyer’s financing falling through at the last minute, as can happen with mortgages if the buyer is unable to receive approval, sellers frequently prefer to work with cash purchasers if they can.
Additionally, sellers who are eager to close may be more willing to negotiate with a cash buyer than they would with a borrower with a mortgage because cash-only transactions frequently go more quickly.
2. No Mortgage Payments, Interest Or Other Fees
A really great benefit is not having to pay a monthly housing payment. If you pay cash, you can avoid the mortgage process and its associated costs and taxes, such as interest rates and mortgage insurance.
You can save a lot of money by withholding interest in the long term. Think about taking out a $300,000 loan with a 3.5% interest rate over 30 years to buy a property.
After the 30-year period is up and the $300,000 principal has been repaid, you will have accrued additional interest costs of $184,968. Cash payments allow you to retain your money in your wallet.
3. Faster Closing
The complete closing procedure for a mortgage-financed house purchase can take more than a month. In comparison, closing on a home can happen as quickly as a week or two when you pay cash.
The amount of time you need to wait to close is much shortened when you do not need a mortgage to purchase a home because you do not need to wait for the lender to accept, underwrite, and process your loan.
Cons Of Paying Cash For A House:
Now that you are knowledgeable of some advantages, let’s look at the disadvantages of paying cash for a property.
1. Your Money Is Tied Up In The House
When you use cash to buy a house, you’re investing a substantial proportion of your money in an extremely illiquid asset, which means you can’t access that money quickly or readily.
For instance, it’s simpler to withdraw cash from a savings account if you need money right away than it is to list your house for sale and use the proceeds.
2. Cash buyers are not qualified for mortgage tax deductions.
The mortgage interest deduction, which allows borrowers with mortgages to write off interest paid on the first $750,000 of their mortgage and lower their taxable income, may go unclaimed if you itemize your deductions.
Obviously, you won’t have this choice if you choose not to get a mortgage.
Consider your goals and whether you may achieve them with less money if you have enough cash to buy a house without getting a mortgage.
3. Additional Expenses Still Apply
Even if you don’t have a mortgage, you may still be responsible for making regular payments for housing.
Property taxes, homeowners insurance, utilities, and, if applicable, homeowners association dues, will all still be required. Additionally, you’ll need to set aside a specific sum of money each year for regular property maintenance and repairs.
You might be able to buy a house with cash, but it isn’t always a wise choice. Instead, if you wish to finance your house, you can pick the mortgage that best suits your needs from a variety of funding options.
The Bottom Line:
Should You Buy A House With Cash?
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