Paying cash for a home eliminates the need to pay interest on the loan and closing costs. Lenders don't charge mortgage origination fees, appraisal fees, or other fees to evaluate buyers, says Robert Semrad, JD, senior partner and founder of Chicago-based DebtStoppers Bankruptcy Law Firm. Paying all the cash for a home may make sense for some people and in some housing markets, but be sure to consider the downsides as well. A cash offer is a cash offer, which means that a homebuyer wants to buy the property without a mortgage loan or other type of financing.
These offers tend to be more attractive to sellers, as they mean there is no risk of falling funding from the buyer and, generally, a faster closing time. While it's true that all transactions lead to cash in the end, the realities of financing pose obstacles between buyers. You can pay for a house with cash, but that doesn't mean that the advantages of paying for a house with cash outweigh the disadvantages. Cash offers may seem like something only the super-rich can afford, but they are more common than you might think, especially in hot markets, where buyers can take advantage of money from the sale of another home, savings accounts, or gift funds.
If peace of mind is important to you, then paying your mortgage early or paying cash for your home in the first place may be a smart decision. Depending on the temperature of a market, paying cash for a home has benefits from the seller's point of view, strengthening their negotiating position if they can afford to pay in cash. If you're selling to a cash-only buyer, it's important to understand the pros and cons and make sure you're making the best decision for your situation. If the value of your home decreases, you may lose more, in percentage, if you have a mortgage than if you had paid in cash.
Another important difference is that cash buyers must demonstrate financial standing to the seller before moving forward. Buyers who are willing to pay cash have an inherent advantage over those who need to borrow, and can even win over the seller at a lower price. Cash buyers can choose a closing date that appeals to the seller and can even choose to move to a property within a week or two of making an offer if the property is vacant. Paying a home with cash means you won't have to pay your mortgage every month, and home equity provides a sense of security in the event of financial emergencies.
In some real estate markets, publicly traded agents will ask the buyer to provide proof of funds that they can close the purchase with the cash buyers have in the bank. Sometimes a seller doesn't accept a cash offer and instead chooses another buyer who needs to get a mortgage from a lender. Paying for a home in cash means that the buyer will transfer the money or issue a cashier's check on the closing date instead of resorting to a mortgage company. For starters, disbursing that amount of cash will significantly reduce your liquid assets, leaving you less available for other needs or even home repairs.
However, for a buyer, there is a significant difference between paying cash for a home and seeking financing through a mortgage company.