Does Paying Cash for a House Lower the Price?

OlufisayoJanuary 23, 20200994 views

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It sounds like the logical thing to do with any kind of loan, or as a sound business principle: don’t spend money on something that you can’t cover with cash from your bank account right now.

But is it the best advice when buying a home? Could there be advantages you’d miss out on if you don’t pay with cash? There are a lot of ways you can save.

Advantages to Paying with Cash

We are constantly being told how important it is to make a large down payment to reduce how much you pay in interest over time, no matter whether you’re buying a house or a car. And while that’s true, there are other fees you will save on by buying your house with cash.

The origination fee: If you think about it like a commission, this is the fee that is charged up front by the lender for the loan, or for the service of providing it to you. So if you do not have a loan because you will be paying in cash, then you will save thousands of dollars. But the lenders still want to make their money, so by lowering the
The interest rate: Even when interest rates are low, you will still end up spending thousands of dollars in the 30 years you will spend paying a mortgage on it. In some cases you might end up paying almost half the asking price over time in just interest. To avoid that you can skip having a mortgage altogether.

Buying a home with cash also saves you time. You’ve already spent the time trying to find the right home, but then you have to wait at least a month to get all of the paperwork filled out. Without a mortgage, however, this process may take no more than a week.

Realtors love working with cash house buyers. After going through the daunting process of finding the right home, next comes the part where the buyers have to be approved for the loan. Because there is no risk of there being a falling through of the funding, the sale is more likely to be guaranteed.

Sellers want to close deals fast so they don’t have a lingering stressor over their heads, and admitting upfront that you are a cash buyer might allow you to negotiate a better price.

Why Investors Buy A House With Cash

Because of the savings you get with buying cash, this has become the more popular way for real estate investors, and people who flip houses or develop them professionally, so they can sell them later. This allows investors to take advantage of lower home prices when the market is ripe for those kinds of investments.

Disadvantages of Buying A House With Cash

The two disadvantages are similar. The first one is related to the property taxes you have to pay each year that a portion of your mortgage usually goes to, which is stored in an escrow account.

When you don’t have a mortgage, then, you must be sure to pay these taxes and have money set aside for when they are due.The second disadvantage is that you miss out on a tax deduction if you itemize your taxes. However, it’s up to you to decide whether buying a home with cash is worth it to you.

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