Cash it may be king when it comes to real estate but are there times where you might want to get a mortgage instead?
The real estate industry is quite volatile right now; home prices are up, inventory is down, and rates are slowly creeping upwards. Buyers might be scrambling to find a home, and even then they may be entering a bidding war.
Cash doesn’t always win in a bidding war, though. Terms, dates, and timelines can also drastically affect a seller’s decision on whether or not to accept an offer. A buyer might be offering cash, but if the terms do not fit into the seller’s timeline, a financed offer might be much better.
If you have cash to buy a house, you want to consider all the different costs, interest rates and pros and cons when it comes to the purchase of a home all-cash. It can make it much more attractive to sellers, especially in a competitive market but everything else has to line up for the seller as well.
[Read More: Is it ever okay to overpay for real estate?]
We’ve had buyers that are well financed and put down a hefty down payment and have won one out in a bidding war against all-cash. Again, there are a lot of different factors involved. The financed offer promise to close within 25 days, our buyers had a substantial down payment and earnest money deposit, and there were no contingencies, and they even waived the home inspection. All that is very attractive to the seller, and of course, the seller still gets the full offer price.
Now, if the buyer had come with a financed offer contingent on the sale of another property, a two or three-month closing date, and strict contingencies as to home inspections and other items, a cash offer weaving all of those other details is much more attractive.
A cash offer may also allow the homeowner to sell the house more easily or even at a loss, regardless of market conditions. This is something that the seller should discuss with their listing agent before moving forward on a lowball cash offer. Cash offers can be a lot less than a financed offer but provide better terms that may be more attractive.
Obtaining financing can have significant benefits to a buyer. If they have a lot of cash and could pay outright, they may not want to tie up all that money in a real estate purchase. If you go with a mortgage, you can give yourself some flexibility with the money you do have.
Paying in cash also has tax implications. Mortgage interest payments are tax-deductible, which is very attractive to finance offers. This might be an advantageous way to finance the house due to the reduced tax obligation. It can also protect your money. If you use all cash to buy a house, then all of that liquid cash is wrapped up into a real estate purchase. You may not be able to turn around and sell it whereas if you are financing, someone else’s money is tied up and you can hang onto it a little bit longer before selling.
One thing is for certain if you decide to finance the purchase of the house you want to make sure that you can easily afford the principal payment, interest, homeowners insurance, property taxes and any other fees that may be tacked on to your monthly housing expense such as homeowners association fees or mortgage insurance. Talk to your real estate agent and your lender about the best options for the type of home you want to buy, especially if you have both cash and financing options on the table.