In the current real estate environment, you may be competing with other buyers for your next home purchase. Making a cash offer can improve your odds in a bidding war.
When you find a property and submit an offer to purchase it outright without financing, the funds typically come from savings, selling an existing home, gift money, or borrowing against another asset.
But not everyone has enough cash or assets to make a cash offer, including first-time home buyers.
Another option is to work with a company that will pay cash on your behalf.
Here’s how this typically works:
1. The company provides the cash for your offer from its own funds.
2. These companies typically promise a quick closing which appeals to the seller, and may give you an edge in a bidding war with other buyers.
3. When the purchase is completed, the home is held by the company until you finalize your mortgage with your lender.
4. The company then sells the home to you. Your new mortgage repays the company.
Benefits of buying a house with cash
Cash deals typically close faster and involve less hassle for both buyer and seller.
Paying in cash can allow you to remove the financing contingency from your offer. Without the financing contingency, you bypass the time-consuming steps in the mortgage
process and there is less risk to the seller that you might cancel the contract.
Cash buyers typically pay less closing costs.
• Mortgage loan fees are eliminated.
• An appraisal is optional.
• There is no mortgage loan interest to pay
• Fees paid to a title company and/or attorney may be less.
Drawbacks of making a cash offer
The biggest challenge of a cash offer is the potential for draining your financial resources, reducing your liquidity, and leaving you financially vulnerable.
Remember that the costs of homeownership are ongoing, such as:
• Property taxes
• Homeowners insurance
• HOA fees (if applicable)
Be sure to maintain an emergency fund to cover unexpected expenses such as medical bills or home repairs.
Paying with cash also means that mortgage interest will not be deducted on your federal income tax return.
Of course, the right move depends entirely on your personal finances and long–term goals. If you’re not sure what’s best for you, speak to a trusted financial advisor.
Give me a call to explore all your options for your next home purchase!