Question: What are the Benefits to Paying Cash for a Home?
A reader asks: “We aren’t bragging or anything, but my wife and I have saved enough money to pay all cash for a home. We know we might get a better rate of return in the stock market, but with prices the way they are in Los Angeles, we believe that a seller might give us a break on price if we pay cash. What are the benefits to paying cash for a home?”
Answer: Good for you for setting aside money to buy a house. Very few buyers are disciplined enough to save enough to pay cash for a house, much less a home in California. Prices are astronomical here as compared to the rest of the country.
Depending on the temperature of the marketplace, paying cash has its benefits from a seller’s point of view.
What Are The Benefits To Paying Cash For A Home? Share on XNow, some experts might argue that it’s always cash in the end, and it is. But getting to the “end” prevents some buyers who are using financing from getting there.
Reasons Why Sellers Like All Cash Offers
Sellers will often accept an all-cash purchase offer over a higher priced offer with conventional or FHA loan financing. That’s because they know the cash offer is more likely to close. It involves fewer stumbling blocks. And sometimes a bird in the hand is worth two in the bush, so to speak.
- No Appraisal Contingency.Appraisals are like . . . no, I’m not going to repeat that colloquialism, but everybody has an opinion. Appraisals are not cast in gold. The most common method is reliance oncomparable sales, known as the comparative method, which involves choosing 3 properties and comparing those values to the property in question, adjusting upward or downward for updates / missing features.If a home does not appraise for the purchase price and the buyer is obtaining a loan that requires a 20% down payment or less, the lender will not lend unless the buyer coughs up more cash or the seller discounts the price. There are other options for dealing with a low appraisal, but they can also spell contract cancellation.
- No Loan Funding Contingency.Even though a buyer may be fully qualified to buy a home at inception, a hundred things can come up during the loan process. Apart from the home itself not qualifying, to conditions for loan approval that a buyer cannot meet, to loans that were once available drying up during escrow.More commonly, lenders deny loans because the buyers’ qualifications change upon further scrutiny. Maybe the buyer wasn’t fully employed in the same occupation for the past two years, perhaps financial situations were altered prior to closing such as the buyer purchasing a new car or worse, maybe the buyer was unwittingly a victim of identity theft.
- Faster Closing.A buyer does not need 30 or 45 days to close if the buyer is not obtaining a loan. Once the home inspection and othercontingencies have been satisfied or released, closing can take place in as little as seven days, providing the buyer is willing to sign a lead paint waiver.A faster closing puts money into the seller’s pocket sooner. There are also fewer things that can go wrong in a short escrow period.
Benefits to Buyers to Pay Cash for a Home
When REO lenders have a lot of foreclosures in their portfolios, often the lender will discount the list price of the home in hopes the property will attract multiple offers. Buyers who pay cash for REO homes tend to win multiple offer situations. But there are other benefits for buyers:
- No mortgage payment
- Sense of security
- Available equity in the event of a financial emergency
- Market fluctuations do not matter
- No restrictions on title transfer due to underlying loan
–ABOUT.COM
