Real estate transactions are almost all different. Whether you are buying an investment property or a residence, you will have the option to buy with a loan or buy in cash. There are some big benefits to both. Let’s take a look at why cash might be best, if you can afford it.
The biggest benefit of going all cash is that you do not have to deal with a lender at all. You have complete control over the cash movement, and you do not have to fill out a loan application, wait on underwriting, or worry about your credit holding you back.
Banks learned their lesson after the Great Recession, and most are much more strict when giving out new loans than they used to be. Skipping this step is a major benefit and removes lots of hurdles, including a required appraisal.
When you deal with a lender, closings usually take a full month. If you get on the fast track, you may be able to trim off a week or so, but that is far from a guarantee.
When you pay with cash, there is much less to do prior to closing. Once you are happy with the inspection and the seller is happy with the price, all you have to do is get the title insurance and transfer lined up. When you pay in all cash, you may be able to close in under a week if you don’t run into any snags with the real estate agents and title company.
Win the Bidding War
In hot markets, people are bidding on houses driving prices sky high. In other situations, some buyers offer a similar price, but one is chosen as the winner over another based on the offer. If price is not the factor, what is?
Cash is king. If one buyer needs to secure financing and the other is already set to go with cash, the cash offer might win, even if it is a little lower, because cash is a sure thing. If you can come to the table with an all cash offer, it helps your chances in a competitive market.
Reasons to Use a Loan
While the reasons to go all cash are compelling, there are some reasons you should still use a bank loan. Here are some common situations where a mortgage is better than cash:
- You do not have the cash – this is the most common. Always save 20% for a down payment to avoid private mortgage insurance. A bigger down payment means a lower monthly payment and lower interest costs.
- You would become house poor – If you buy a house that is more than you can afford, and you have to live a poor lifestyle to keep up with costs, you are house poor. If you have to wipe out all of your savings and emergency fund to buy with cash, keep some cash on hand and go with a loan.
- You want the leverage – In some cases, investors and homeowners want to use their cash for something other than equity. More cash on hand lets you use the money for other investments, such as the stock market or additional properties.