Cash speaks. No doubt about that when submitting an offer to purchase a home. Housing inventory is quite low, especially in desirable cities, so putting in an offer to buy a home with cash often will give the buyer a substantial advantage over other buyers. Owners that are selling love cash offers, and cash buyers almost always close the sale much more quickly.
“All things being equal, it’s very likely that your offer would be the most attractive that they’d be considering with limited risk for the seller,” says Marcy Keckler, vice president of financial advice strategy for Ameriprise Financial, a financial planning and investment advice company.
Cash transactions make up a minority of home purchases: Just 23 percent of U.S. homebuyers pay cash for their homes, according to real estate information site Zillow’s Consumer Housing Trends Report 2018.
Buying cash will almost certainly give you an advantage against the competition for your dream home.
But is paying cash for your home always in your best financial interests?
Devon Thorsby at US News indicates that you should consider a few things about your financial picture before buying a home with cash.
You Might Need Some Of That Cash
It’s not wise to purchase a home with cash if you have just enough liquidity to pay for it. Cash is important to have on hand for any number of unexpected needs, from a new roof to a medical emergency. You want to have enough money to sustain you for at least a few months if you were to lose your income.
“It’s especially important that if you’re a homeowner that you have enough other money available to pay for things that might come up,” Keckler says.
You Are Eligible For A High Quality Mortgage
High quality, meaning a low interest rate, and not having to pay for mortgage insurance.
If you have enough cash to purchase a home outright, lenders will likely view you favorably for mortgage options. With a down payment of 20 percent or more, you don’t have to worry about mortgage insurance when it comes to a conventional loan, and you’re more likely to get a lower interest rate due to the lower risk lenders perceive that you’ll default on the loan.
For the younger generations that make up the lion’s share of homebuyers today – millennials alone comprise 42 percent of homebuyers, according to the Zillow report – financing is a natural move. Both generations are unlikely to buy a home with cash, according to Zillow report; just 19 percent of Gen Xers and 16 percent of millennials purchased homes without financing.
“People are pretty comfortable with taking on debt,” says Justin Vedder, chief operating officer of origination solutions at Altisource. He notes the younger generations’ familiarity with student loans and other financing make taking on a mortgage an easier choice than for older generations that have built up greater wealth over time but may not be accustomed to having significant debt.
Grow Your Money Where It Will Grow Much Better
Even if you’re looking to buy a home outside a pricey metro area, if you have enough cash to pay for a home outright, you’re likely sitting on a pretty big pile of money. But the decision isn’t necessarily between buying a property outright or keeping money idling in the bank. Consider other forms of investment to grow your wealth.
It could be investing in the stock market, mutual funds or a personal business you feel confident will bring greater returns.
Taxes, Taxes, Taxes
All homeowners with a mortgage receive a tax break on the interest paid to the lender…
Following federal tax reform passed at the end of 2017, the mortgage interest tax deduction has been limited to a total of $10,000. While residents in parts of the U.S. with particularly high local property taxes are affected by this measure, most homeowners in the U.S. do not exceed the $10,000 limit. In addition, changes to the standard deduction make it so there are likely fewer filers opting to itemize their tax returns beginning with 2018 taxes.
Housing Prices Could Fall – It Is Always A Risk
Home prices are on the rise and in many markets are at an all-time high. They are expected to continue to rise, if at a less intense pace, in 2019, with signs of a slowing market already apparent this fall. But if the housing market crash in 2008 was any indication, there’s no such thing as a guarantee in real estate.
Paying cash for a home almost certainly gives you a big advantage over your competition, but it would be a great idea to consider whether paying cash for a home is helpful or harmful to your long term financial goals.
Also, if you are trying to buy a house, but you have less than great credit, see my post, titled “How To Buy A Home With Bad Credit.”
Are you searching for your dream home in the Greater Las Vegas Valley? Looking to sell your existing home?
Then contact Rick Edwards and let’s get started today. Rick will get you results!