Buying a property with cash tends to be a method most used by those with plenty of financial resources at their disposal: namely those seeking a second property or looking to invest. Those with plenty of liquidity at their disposal are typically more likely to buy using cash.
A competitive market, complex mortgage processes and high interest rates can all make buying a home by cash purchase seem like a good move - but it’s a good idea to understand what this process involves before making any major decisions.
Does Location Matter?
Cash home purchases tend to see the biggest increase in areas like Cleveland and Florida, boosted by older buyers with enough equity to tap into their retirement accounts to purchase a home.
Elsewhere, cash home buyers Virginia Beach and other locations such as Philadelphia and Riverside, California have either increased, or remained steady in spite of a fluctuating market and declining house prices.
Cash-Purchase Checklist
Here are some pointers to help you decide whether cash purchase is for you.
Financial goals: Does a house purchase align with any other financial goals you might have (especially savings and investment in retirement accounts?
Future loans: Bear in mind that applying for a personal loan or mortgage (whether by refinance or purchase) can reduce the amount available for repayments or downpayments on a cash-purchase home.
Taxes: A mortgage-free purchase has its pros and cons; for example, you won’t be able to claim mortgage interest deduction in order to reduce your tax bill.
It can also be a good idea to speak with a wealth manager or financial advisor about alternative investments. This is to evaluate whether the risk of any investments you make (such as home purchase) are worth making in comparison to others.
Process
If you have decided to go ahead with making a cash-purchase on your new home, here are the steps you need to take:
Funds distributed across various accounts can complicate matters, so consolidate your cash into one place before making your bid. Keep in mind that if you are drawing from a retirement account, you may have to add on penalties or taxes.
Choose a realtor who specializes in all-cash purchases: those with detailed expertise will be better equipped to help you with addressing fine details and making key negotiations.
In lieu of a mortgage pre approval letter, ask your financial provider for proof of funds; a document proving you have the financial resources to purchase your chosen property.
Sellers (who rely on cash offers to make quick sales) are drawn to buyers who want to close quickly, so use your cash offer to negotiate the best sales price.
This process might go quicker than you think, so have your funds at the ready in case of closure. This can be done by cashier’s check. Alternatively, you can also use wire transfer, but bear in mind the majority of banks have limits on the amount they can transfer, which may also incur fees. If you exceed this limit, you may need to visit the bank in person.
Some Final Considerations
A cash purchase negates the need for financing approval, interest payments and closing costs, although there are benefits to purchasing with a mortgage and investing long-term. Assessing your personal situation will ensure you make the wisest choice.