I am a divorced guy who has been renting for the past 4 years. I would like to purchase a home for numerous reasons, mostly personal, some tax advantages.
My credit is not great. Rather than jump through hoops to get a mortgage, I am considering buying a house with a pile of cash. Will my credit matter? What advantages/disadvantages are there? Once I purchase the property could I get a home equity loan and use it to do improvements? Is it easier to qualify for a home equity loan than it is for a first mortgage?
First, you will have to document where that cash came from. And if you can’t, don’t buy the house unless you want DEA agents knocking on your door.
Find a real estate attorney to represent you.
Getting a home equity loan is easy, and sometimes cheaper, than getting a mortgage. Since you have 100% equity, you could probably qualify for 50% easy. You might have to pay inflated interest and/or points, but you can refin at the end of a year and, if your payments are good, you should get a lower rate after that.
I bought a house a few years ago with my ex-husband (he wasn’t ex then).
Because of credit issues, we struggled to find a lender that would give us a mortgage. We were buying the house from family, so in a fit of clear thinking, I came up with our solution. The family could quit claim the house to us, giving us 100% equity in the property, and we would get a home equity loan to pay off their portions. Because they were selling it to us below market value, we were able to get enough of a loan to pay off what the sellers wanted, and still retain 25% equity in the home (it helped that we had a very generous appraiser). We were still unable to get a conventional home equity loan, though, and had to go through a lender that dealt with bad credit borrowers, and paid an ungodly interest rate (double digits).
So: Yes, for us, it was easier to get a home equity loan than to get a mortgage. The disadvantage was, they still look at your credit when you get the equity loan, so it will still affect you negatively.
You don’t have to. I purchased this house with cash and no one was in the slightest bit interested in where the cash came from. Banks would be required to ask questions if you showed up with a suitcase full of used twenties, but that has nothing to do with buying a house. I assume “cash” in this context means “making a full onetime payment with my extant money rather than getting a mortgage”, rather than “offering this stack of hundreds”. Use of intruments other than folding green stuff (wire transfers, cashiers checks, et al) doesn’t raise any eyebrows at all. Given that you state that you have bank statements, you’re cool.
I agree with bashere. At closing, the seller expects to see money available for transfer to his account. He cares little whether this comes from a bank extending you a mortgage, or a bank where you have funds on deposit.
Nor do I see any particular reason why this requires an attorney. If other aspects of the transaction call for legal help, fine. But your bank is quite capable of transfering money from your account, without the help of a lawyer.
No problems with buying a house with cash. In fact, the deal with the seller should go a lot smoother since you don’t have to qualify for financing. Only disadvantage is that you’ll be out the cash and will lose any kind of leverage in owning the house. I’ also assume that you can’t find anything better in which to invest your money. You shouldn’t have any problems with getting a home equity loan afterwards.
I’m assuming that by “cash” you mean without financing and not with a pile of currency. In the standard residential sale contract in use in downstate New York, the bulk of the payment must be made by certified or bank checks (whether from the buyer, the lender or some other source), with currency or uncertified checks of not more than $1,000.00. I would be very leery of letting a client sell to someome who wants to use more currency than that, though I understand that in some (primarily immigrant) communities in New York it is common.
If you want to buy without financing, you should have an advantage because a sales contract that is not contingent on financing is more of a “sure thing” for a seller than one where the seller has to take the house off the market for several weeks with the risk that it may go back on if the buyer cannot obtain a loan.
That being said, you may have some tax advantages if you take out financing, as home mortgage interest is deductable on your federal tax return. For specific advice, consult your own tax or legal professional.
Also, in the context of home equity loans, if the lender offers a loan of “125% of your equity”, on that same home you’d be looking at a loan of $31,250. Which then of course means you actually don’t have any equity in the home at all, because it’s all borrowed out, and then some.
I believe that the real estate columns I’ve read advise against purchasing a house entirely with cash. I think the idea is that if you get into trouble later, you may have a hard time getting a mortgage if you need the money. Perhaps instead of all cash, you might obtain a mortgage for 50% of the amount? I’d think you’d have an easier time of getting a mortgage if you can show that much in liquid assets.
I work for a bank in our loan operations department. Every time you open any account with the bank the USA Patriot act is kicking in. We are required to know our customers. This ranges from verifying their identity (for new accounts by) to running them through a database to determine if they are wanted by the Feds for anything.
I do find this to be vaguely sinister. Since when is it against the law to have in your posession large amounts of cash? What if my father was worth 2.5 Million, and chose to sell off all of his gold bit by bit, bundling 100.00 bills in big piles and storing them all in a large used cardboard box that he got from the liquor store?
He died, leaving it all to me. I paid the proper taxes out of it, and have a whoppin’ wad of cash left. It’s pretty lousy that I am required to deposit that cash into a bank, which would immediately investigate me and whatnot, when the cash is mine and mine to spend as I see fit.
I wanna buy a house on the North Shore of Long Island? Something close to Leonard’s of Great Neck cause I love their chopped liver? I should be allowed to do so.
Since when did the Patriot Act render US currency illegal??
Cartooniverse
p.s. Just so we’re all straight. I’m suffocating in debt. The story above was postulated out of thin air to prove a point.
I have a quick question about this, because of the language you used. The “KYC” rules were proposed in '99; are you conflating the patriot act with the KYC rule, or did the KYC guidelines actually beome law because of the patriot act? Or C, I’m confused again?
The Know-Your-Customers guidelines annoyed me when proposed (and I thought they annoyed banks) but I thought they predated the Patriot Act. Again, this is an honest question and not an attempt to start a debate; I am simply confused.
