Cash Offers
Very few homes cost less than $150,000 these days so cash offers may not come into play as much as they used to. There are many people who can't even afford the 20% down payments that most lenders require before offering mortgages to potential homeowners.
Cash offers are usually only made by homebuyers who are quite comfortable. These people typically have enough money to pay for their home upfront and enough extra money saved up or invested to pay bills, living costs and handle any other financial hurdles they may encounter.
Some homebuyers choose to make cash offers for a new house after having sold a previous home, but sometimes this can be a mistake. Though a buyer may have money in hand from the sale of their old home, it is important that each homebuyer assess their particular financial situation before jumping at making a cash offer.
Things to Consider Before Making a Cash Offer:
- Will you have enough money to maintain the home long-term?
- Do you expect that you might encounter another major financial burden in the future (i.e. hospital bills, home repairs, a child's college tuition, a new vehicle)?
- Do you already have money set-aside for retirement?
- Do you have extra cash in savings or a significant number of liquid assets?
Many people who make cash offers do so in order to steer clear of large monthly mortgage payments and avoid paying interest to lenders but some of these people do not realize how these cash offers will affect them financially down the road.
The first thing to consider is whether or not you will be able to maintain the home you buy without ever having to finance it in the future.
Homebuyers who make cash offers and then end up needing extra cash for repairs, living expenses, taxes or insurance usually have to choose to finance. This usually occurs when the buyer hasn't taken into consideration how much money will actually be left over once the offer is made. When a homeowner has to finance after they have already bought their home they can actually end up paying more than they would have when they initially made their offer. This is because they end up paying fees that are usually split between the buyer and the seller including the appraisal and origination fees. These homeowners may also end up paying higher interest rates if the lender sees the money that has been pulled out of the home as a refinance.
In addition, homebuyers who make cash offers have to keep in mind that having equity in a home is not the same as having accessible cash. Cash is a liquid commodity while equity is not. With cash the availability of funds for financial emergencies is immediate and the amount saved remains consistent. With equity there is no immediate cash available and the amount paid out from equity in a home will differ. If a homeowner has invested all of their money into equity in their home and they need to access funds quickly they may run into serious problems. Time is needed in order to sell or to refinance and often when equity needs to be converted immediately to cash a significant amount is lost in the process either by lowering the cost of a home so that it is scooped up by another buyer quickly or, in the case of refinancing, paying out the many unavoidable fees.
If you are considering retirement in the near future you can be sure that purchasing a home with a cash offer will eliminate costly monthly mortgage expenses, but you should be sure you have enough left over to cover all living expenses, property taxes, home maintenance costs and homeowner's insurance.
Usually it is wise to have at least six months of financial padding in liquid assets available before making a cash offer on a new home. This way there will be cash available when you need it and you won't have to go through the hassle of pulling the money that you need out of your home.
Before making a cash offer on a home it is also essential to evaluate how interest deductions might affect you when tax time rolls around. Mortgages usually constitute significant tax deductions so if tax deductions are essential to your financial framework you might want to think twice about making a cash offer and go for a mortgage instead.
Many real estate professionals will advise their clients not to make cash offers unless they are extremely financially stable. Some people heed this advice and others sometimes overlook it, believing that it is better to own property with no strings attached than to be tied to a lender for decades hoping to one day fully own their home.
Most sellers will appreciate cash offers to no end. Often this type of offer eliminates some of the costly fees involved with selling a home and sometimes sellers are willing to drop the asking price of the house if the buyer is willing to pay in cash.
If you do decide that you are ready to make a cash offer for a new home there are a few things you should do beforehand.
The first is to go to the bank and get a printed statement of your current savings to display to the seller that you have enough money in the immediately available to cover the cost of the home. You should attach a copy of this bank statement to your offer when you present it to the seller.
If you do not have the funds immediately available when you make the offer you should give the seller an idea of how long it will take you to access them. For example if you need to cash in stocks or bonds to access your money you should set up a timetable for the seller indicating the times when you will be able to fully access each asset so the seller knows when they will be paid.
Whether you can't stand the idea of having to depend on a lender or you are just wealthy enough to carry the cost of a home and the extra expenses that come along with homeownership with what is in your bank account, it is important to consider all of the pros and cons of making a cash offer before doing so.
Consulting a financial or real estate professional before making such an offer is always a good idea. These people can let you know the ups and downs of mortgages versus cash offers so that you can make an informed decision.
Cash Offers
Very few homes cost less than $150,000 these days so cash offers may not come into play as much as they used to. There are many people who can't even afford the 20% down payments that most lenders require before offering mortgages to potential homeowners.
Cash offers are usually only made by homebuyers who are quite comfortable. These people typically have enough money to pay for their home upfront and enough extra money saved up or invested to pay bills, living costs and handle any other financial hurdles they may encounter.
Some homebuyers choose to make cash offers for a new house after having sold a previous home, but sometimes this can be a mistake. Though a buyer may have money in hand from the sale of their old home, it is important that each homebuyer assess their particular financial situation before jumping at making a cash offer.
Things to Consider Before Making a Cash Offer:
- Will you have enough money to maintain the home long-term?
- Do you expect that you might encounter another major financial burden in the future (i.e. hospital bills, home repairs, a child's college tuition, a new vehicle)?
- Do you already have money set-aside for retirement?
- Do you have extra cash in savings or a significant number of liquid assets?
Many people who make cash offers do so in order to steer clear of large monthly mortgage payments and avoid paying interest to lenders but some of these people do not realize how these cash offers will affect them financially down the road.
The first thing to consider is whether or not you will be able to maintain the home you buy without ever having to finance it in the future.
Homebuyers who make cash offers and then end up needing extra cash for repairs, living expenses, taxes or insurance usually have to choose to finance. This usually occurs when the buyer hasn't taken into consideration how much money will actually be left over once the offer is made. When a homeowner has to finance after they have already bought their home they can actually end up paying more than they would have when they initially made their offer. This is because they end up paying fees that are usually split between the buyer and the seller including the appraisal and origination fees. These homeowners may also end up paying higher interest rates if the lender sees the money that has been pulled out of the home as a refinance.
In addition, homebuyers who make cash offers have to keep in mind that having equity in a home is not the same as having accessible cash. Cash is a liquid commodity while equity is not. With cash the availability of funds for financial emergencies is immediate and the amount saved remains consistent. With equity there is no immediate cash available and the amount paid out from equity in a home will differ. If a homeowner has invested all of their money into equity in their home and they need to access funds quickly they may run into serious problems. Time is needed in order to sell or to refinance and often when equity needs to be converted immediately to cash a significant amount is lost in the process either by lowering the cost of a home so that it is scooped up by another buyer quickly or, in the case of refinancing, paying out the many unavoidable fees.
If you are considering retirement in the near future you can be sure that purchasing a home with a cash offer will eliminate costly monthly mortgage expenses, but you should be sure you have enough left over to cover all living expenses, property taxes, home maintenance costs and homeowner's insurance.
Usually it is wise to have at least six months of financial padding in liquid assets available before making a cash offer on a new home. This way there will be cash available when you need it and you won't have to go through the hassle of pulling the money that you need out of your home.
Before making a cash offer on a home it is also essential to evaluate how interest deductions might affect you when tax time rolls around. Mortgages usually constitute significant tax deductions so if tax deductions are essential to your financial framework you might want to think twice about making a cash offer and go for a mortgage instead.
Many real estate professionals will advise their clients not to make cash offers unless they are extremely financially stable. Some people heed this advice and others sometimes overlook it, believing that it is better to own property with no strings attached than to be tied to a lender for decades hoping to one day fully own their home.
Most sellers will appreciate cash offers to no end. Often this type of offer eliminates some of the costly fees involved with selling a home and sometimes sellers are willing to drop the asking price of the house if the buyer is willing to pay in cash.
If you do decide that you are ready to make a cash offer for a new home there are a few things you should do beforehand.
The first is to go to the bank and get a printed statement of your current savings to display to the seller that you have enough money in the immediately available to cover the cost of the home. You should attach a copy of this bank statement to your offer when you present it to the seller.
If you do not have the funds immediately available when you make the offer you should give the seller an idea of how long it will take you to access them. For example if you need to cash in stocks or bonds to access your money you should set up a timetable for the seller indicating the times when you will be able to fully access each asset so the seller knows when they will be paid.
Whether you can't stand the idea of having to depend on a lender or you are just wealthy enough to carry the cost of a home and the extra expenses that come along with homeownership with what is in your bank account, it is important to consider all of the pros and cons of making a cash offer before doing so.
Consulting a financial or real estate professional before making such an offer is always a good idea. These people can let you know the ups and downs of mortgages versus cash offers so that you can make an informed decision.
