Here are five tips for home buying with cash.
1. Leverage your position to the max. Because cash buyers get to skip over the loan qualification process, cash deals are more attractive to sellers in many cases. Take advantage of this position and ask for terms such as a closing timeline, home repairs, cash allowances, or a homeowner’s warranty. You can even ask sellers to cover closing costs as a cash deal contingency.
2. Work with a real estate broker or lawyer experienced in closing cash deals. This tip could save you money and prevent legal hassles down the line. You want someone on your side with experience and perspective on this kind of deal within your market. Even cash deals can hit snags and you want to ensure that you have all of your legal bases covered and that you have clear title on the property when the transaction is complete.
3. Make sure that buying a home with cash is right for you financially. Before you plow all of your cash into purchasing a residence, you want to carefully consider all of your investment options. By choosing a different financial instrument with a rate of return higher than the cost of mortgage interest, you may be able to make more on your money than a mortgage costs in interest. Before you tie your cash up in a home, be sure to have plenty of additional money stashed for emergencies and other needs. Also, do your due diligence and look for investments that could make you more than a mortgage would cost you (if you’re eligible for a mortgage).
4. Give yourself an out with a “right to inspect.” Because you’ll have generally less information about the property prior to close, you definitely want to provide yourself with an easy out should the home end up being a lemon. While a home inspection may add a few days to the closing cycle, it is worth it if you’re buying a home with cash. If you’re feeling especially gutsy and the property has been on the market for a while or the seller seems desperate to close, ask him or her to pay for the inspection. Take advantage of your position! Remember, cash is king.
5. Estimate sale AND post-sale costs. Buying a home with cash can save a pretty penny on the cost of a transaction – and on mortgage interest over the lifetime of a loan. Cash buyers are able to avoid loan origination fees, the cost of a property appraisal, some closing costs and other lender imposed fees. Although you save a lot of money upfront, the transaction can end up costing you in the end. You’ll make a purchase decision with less information – which could mean a lower valuation or higher taxes than anticipated down the line. It also might end up costing you in terms of unexpected home improvement costs or survey and title issues. You also may be getting less house for your money by forgoing a mortgage.
6. Understand the benefits of holding a mortgage that you may be sacrificing. In addition to the tax benefits that you’ll be walking away from, mortgages for primary and secondary residences can provide a high-quality installment loan for your credit report. This type of “good debt” can make it easier to borrow money or get favorable rates on other financial products such as credit cards.
7. Ask your agent to check the “appraisal contingency” box on the purchase agreement and have the home appraised. Although the appraisal may cost a few hundred dollars, an appraisal is the only way to ensure that you are purchasing the home at its true current market value.