I’m coming into some money (spare me your cheap and excruciatingly obvious wise cracks) and, after renting my whole adult life, have decided to buy a place. It would actually be quite feasible for me buy a home outright without going through the insufferable hassle of getting a mortgage.
Now, I’ve heard people mention that when you buy a house for cash that this is a pretty good bargaining chip to get a place for cheaper than the going rate. Is this true? Because, frankly, I don’t see it. And, if so, how come? Other than hassle avoidance, I don’t really see the advantage from the seller’s point of view. Can anyone explain this to me or were the parties in question just blowing smoke?
In my experience (buying houses in Australia and the US), you always buy for cash, but you generally have to borrow most of the cash from a bank or mortgage company. Having the cash is no more of a bargaining chip that having a mortgage pre-approved. It just means that the seller does not have to worry that you will have to back out because you can’t raise the loan. But from the seller’s point of view, your having a substantial deposit and a pre-approved loan is jusat the same as cash.
I think there are some protections insisted upon by a mortgage company for the financing you might want to look at. Title search, etc. I dunno for sure.
Speaking as a Realtor[sup]TM[/sup], I agree with what Giles says about house puchase.
However, you might want to consult a tax advisor and consider the implications of NOT having a mortgage payment. In U.S. laws, that can be one of the most advantageous deductions available. It might be better to get a mortgage and invest your cash.
And, in my state at least, title search/insurance can be purchased independently of a mortgage loan. Ordinarily, it would be foolish to purchase property without it (the exception might be if the property has been in your family for generations).
It is not unheard of for a prospective buyer to disappear from a seller’s site because they can’t secure the financing that everyone thought they’d be able to secure.
When a house is sold, the following entities may quash the deal:
Buyer
Home inspector hired by Buyer
Seller
FHA/VA/etc
Lender
Home inspector hired by Lender
Title insurance agency hired by Lender
Without a lender involved, parties 4, 5, 6 and 7 go away.
When I bought my house, #6 killed the deal with my first lender, and I had to procure an all-new 5, 6 and 7, and satisfy them anew. All due to water on the floor of the basement due to a sewage issue. No amount of plumbing work would satisfy the old lender. My sale was held up by 20 days, and my APR went up by .25% due to market timing.
Bottom line, you’ll close quicker if you’re paying cash.
You didn’t ask, but I’ll offer some quick advice:
Get the home inspected by a trustworthy inspector. Maybe even two.
Get title insurance.
Get a lawyer to help finalize the transaction and act in your interests.
Don’t trust anyone employed by the seller.
Consider a buyer’s agent (this is a real estate agent). This will cost you some money, but it can save hassle depending on how valuable your time is to you.
Consider financing the house even if you can afford to buy it outright. Think about the tax savings and the low interest a mortgage will have, and the possibilities of saving that inherited money for retirement.
I hope I have not offerred too much help, but I felt you should have those tips.
You might have some advantage in offering cash. Some sales do fall thru because loan is turned down.
Cash is not usually that big of an advantage however. Those who can take a substantial discount from what they want aren’t usually the ones who are desparate for the money and those who are desparate are usually the ones who can’t bargain that much because they owe a lot.
I think it refers to the concept that property transfers often involve a whole “chain” of transactions e.g. A sells his house to B. At the same time B sells his house to C and so on down the line. If there’s a problem somewhere along the chain from you, it’s possible it may affect your own transaction. Thus if you’re at the end of the chain (e.g. having been a renter and buying your first home), you’re a “less complicated” party.
Also, Quartz , us Yanks do have the problem of chains, but I believe that term is not in the vernacular speech of all (most?) (any substantial %?) Americans.
I hope by "cash’ you really mean the ability to pay in full with a cashiers check- as opposed to a breifcase full of used $100’s?
If you mean the former- then yes, it is a small point in your favour as it means they don’t have to worry about the loan falling through or other similar things happening. Don’t try and pay with currency, please.
Jonathan Woodall has offered some good advice, otherwise.
Brain, I too cannot think of a scenario in which paying cash to the owner would give you a “bargaining chip” to get a lower price…unless the owner wanted to sell quickly, in which case they might accept a lower price in return for a better chance to get that money. But that’s an iffy proposition.
On the other hand, if you pay cash, you are also saving the $300-$1000 you are paying in mortgage fees.
Of course, there are times when there are tax benefits to having a mortgage. However, there are also times when there are not tax benefits to having a mortgage.
This advantage really only comes into play with motivated sellers. The two major advantages to a non-financed deal is increased probability of closing and decreased time to closing. These factors are very important to motivated sellers.
If the seller isn’t motivated, then the only advantage to a non-financed offer would be a slight edge over buyers bringing financed offers to the table.
I agree with the previous poster that if you aren’t in a competitive bidding situation, consider whether the money would be better invested. As a gross simplification, if you’re looking at a 6% mortgage and you know of an investment that will make better than 6% over the next 30 years, take the mortgage and invest the money. (Again, wild simplification of numbers for the purpose of illustration).
As a Commerical Realtor in my experience having cash vs getting cash means almost nothing in achieving a better price, especially in a highly competitive real esate market like the current one. In resiential sales most qualified, pre-approved buyers have a relatively high probablility of being able to come to the table with cash via an approved loan, so your ability to open a briefcase and wave the green around means realtively little to sophisticated sellers.
If the property is distressed in some way that concerns or scares off traditional lenders there may be an opportunity for you to achieve a bargain, but caveat emptor is the rule in those deals.
As side note you are (IMO) making a questionable choice to buy the house for cash. If you can get a loan @ 5.5% or so you can use the leverage of your cash for purchase income producing properties (or other investments). Paying cash for a house may may you sleep better at night, but it is not the best way to increase your wealth.
