By Madhusmita Bora
CTW Feature
Despite economic gains, many homebuyers are still struggling to cough up a 10 or 20 percent down payment. At the same time, there are quite a few buyers willing to pay all cash for a home.
In November, cash sales accounted for 38 percent of all homes and condominiums sold, according to RealtyTrac. That’s up from 31 percent a year ago.
“We believe that’s a knee jerk reaction to the new regulations on mortgage disclosures,” says Daren Blomquist, vice president at RealtyTrac. “That threw a wrench on buyers using financing.”
Blomquist also attributes the increase to global economic weakness, especially in China.
“That is driving more foreign investment in real estate, and many times the foreign buyers are cash buyers.”
Whatever the reason, cash buyers have some definite advantages over buyers who borrow money. Often these buyers are investors, not the traditional buyer looking for their dream home.
Here are some advantages to buying a home in cash:
- No mortgage
Anyone who’s been through the mortgage application process will tell you, it’s not easy. There’s lot of documentation and anxiety tied to borrowing money. Since the housing bust, mortgage lenders have been obliged to more strictly scrutinize applicants. Squeaky clean credit and solid income records aren’t the only qualifying criteria these days. Mortgage lenders are still adjusting to working with new disclosure documents, such as the Loan Estimate and the Closing Disclosure, that provide homebuyers with additional time to scrutinize loan terms.
2. Sellers are your new BFFs
The mortgage process is time-consuming and it comes with no guarantee. Sellers often prefer cash buyers and take them more seriously. “It makes everything easier,” says Adam DeSanctis, economics issues and media manager at National Association of Realtors. “Closings are quicker since you don’t have to go through a lender.”
- You have power
At least in this market, cash is king, Blomquist says. If you have cash, you automatically jump to the front of the line. Not just that, you also have the power to bargain. Motivated sellers are always looking to quickly close a deal and move on to the next investment. The cash buyer is well positioned to bargain for the best deal.
- Lower closing costs
There are a lot of fees that come along with applying for a mortgage. A cash buyer can save money on closing costs, bank appraisals, mortgage applications and fees and title insurance. - Instant equity
When you buy a home with cash, you own the property free and clear. There’s no fear of losing your home because of a lost job, bad investment or missed payment. You have instant equity instead of paying mortgage to free your home over a 30-year period. - More disposable monthly income
If you pay all at once, you don’t have to worry about the monthly mortgage ticket or missed payments. “Many buyers would love to be in that position,” Blomquist says. With the money you save on interest, you could invest elsewhere and grow your assets.
- Laugh at appraisal oddities
According to the National Association of Realtors, all-cash buyers avoid the risk of a low appraisal and a potential deal breaker. Home appraisals, which are devised by taking into consideration comparable sales, can be unpredictable. A low appraisal means a lower loan offer, which could mean that the buyer can no longer afford the home. All-cash buyers don’t have to deal with this uncertainty. - Peace of mind
Of course, there’s no question that all-cash buyers have the ultimate sense of security. There are no looming deadlines to pay off debt and no lenders hanging over your head. That is something that no money can buy.
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