If you are in the market searching for a home and can afford to pay in cash, you need to assess whether paying in cash is actually a good idea. Before you commit to it, you need to know what you are getting into. Keeping this in mind, let’s consider the pros and cons of paying in cash for your new home:
One of the best things about paying in cash is you do not have to worry about getting a mortgage. Acquiring a mortgage loan is a hassle. Apart from meeting the various requirements, fulfilling the loan and making the required repayments can take its toll on your income and your time in the long run.
Apart from putting you in a better bargaining position, you will appear more appealing to the seller. Paying in cash means you and the seller save a lot of time. Additionally, the seller will receive the money sooner and can use it right away. This allows you to negotiate and get a better deal where you do not have to pay more than what the home is worth.
Since you will not be applying for mortgage, the seller will understand your importance as a buyer. Your credibility and interest in their home will be taken more seriously. Even though various other buyers may be interested in the property, you can outgun them by paying in cash. This saves you a lot of time and effort which is required when dealing in real estate through mortgage loans.
Unless you are filthy rich, a considerable sum of your money will be tied in one asset. You will be going against one of the sacred rules of personal finance where diversification is an important aspect. Moreover, the residential real estate market is not faring well as it recovers from the impact of the recession.
You have to keep in mind that when you are buying a home via a mortgage loan, the returns are higher than you normally get. But this is only possible if there is an increase in the value of your property. However, this principle works both ways because if the value declines, you can lose more money than you invested and end up owing more. In addition, your liquidity might take a hit after making a huge payment by cash.
Keeping these factors in mind, it is safe to say paying in cash for your new home is a good idea but only if you can afford and manage it.