Things to Consider with a Cash Offer
In a competitive housing market, buyers are pulling out all the stops. You may have enough money to buy a house with cash. But is that a wise decision? As with many major financial decisions, there are pros and cons. Here are things to consider with a cash offer.
Savings & Interest Rates
Amortization is everything when considering financing over a cash purchase. Paying cash will save money on the overall cost of a new home in reference to the interest you’ll pay over the term of a loan. By the time you finish paying off a mortgage, the house will have cost you more than the initial purchase price because of the interest.
Attention of Buyers
A cash offer will likely give you an advantage in a competitive market. It can make all the difference in a multiple offer situation where everyone else is financing the purchase. Sellers will be more likely to accept a cash offer than one with a financing contingency. For example, a cash offer doesn’t require an appraisal on the property, so there is no risk of the deal going south.
Closing Cost & Time
More closing costs are involved in financing a property than paying in cash. For one, you won’t have to deal with a lender or their team of underwriters, and again, you won’t have to pay for an appraisal. The closing process typically takes around 30 days with financing, which can be shortened to as few as ten days with cash, which could be very attractive to sellers.
Long-Term Opportunity Cost
While you will save money by not paying mortgage interest, putting all your assets into a home could yield less money to invest in other endeavors. Tying up all of your liquidity on one asset could potentially cause you to miss out on a return that will be much larger over time. For example, while property typically accrues in value over time, it might not offer the same rate of return as investing in the stock market. One broker explained it best: “you could be making money with your money instead of locking it up in your home.” On the flip side, it’s a pretty great feeling to relax in a home that is 100% paid for rather than paying interest to big banks.
Emergency Funds
While owning your home outright can provide peace of mind because you’ll never have to worry about a mortgage payment, you don’t want to have all your money tied up in your house. You must have enough cash to cover maintenance expenses and emergencies. Homes aren’t always what they seem when glistening on the market. Once you begin to peel that onion, you’ll need enough liquidity to fix it up and make it yours.
Paying cash for a home instead of financing all or part of it is a big decision and should be made with the help of a trusted financial advisor. It is essential to consider all the above factors and ensure your short-term intentions align with your long-term goals.
If you are considering buying or selling your home and looking for a great REALTOR® to show you around the Reno-Sparks area, contact the David Morris Group. We’re happy to be your helpful guide. Give us a call at (775) 828-3292.
