Is Cash is Still King?
At a time when many Americans may find it difficult to scrape together a 10% down payment for a home, some buyers are looking to to purchase their home now in all-cash deals. The huge majority of cash buyers consists of individual investors, as well as second and first time home buyers.
When you purchase a home in cash, you save on certain closing costs and also gain immediate full equity in your property. You also avoid paying thousands of dollars in interest with an amortized mortgage.
So, if you could afford to pay cash for an investment property or your home, should you? Take a look at some of the pros and cons of buying a house with cash.
The Benefits of Buying a House with Cash
You’re a More Attractive Buyer
A seller who knows that you’re paying for cash will take you more seriously. If you don’t have to plan for a mortgage, sellers may find your more appealing. The mortgage process can be time-consuming, and there’s always the possibility that an applicant will be turned down, the deal will fall through and the seller will have to start all over again.
You’re also more attractive to a seller with cash because the closing will be much faster. Because of the new TRID laws that took effect late last year, the average mortgage loan-closing time is 45 days, while a cash close can take as little as 14 days. The faster close is more and more appealing to both buyers and sellers. Not only do sellers like the idea of this, but you might find it nice to quickly move into your new home.
Negotiate a Better Purchase Price
With cash, you’re much more likely to get a better deal, putting you in a better position to bargain. Since “time is money,” the sooner a seller receives their money, the sooner they can invest or make use of it.
Being ready to pay cash not only gives you an edge with motivated sellers eager to close the deal, it also helps with sellers in real-estate markets where inventory is tight and bidders may be competing for their property.
Avoid the Hassle of a Mortgage
Imagine forgoing the hassle of getting a mortgage. Since the housing crisis of 2007-08, mortgage underwriters have tightened their standards for deciding who can get a loan. As a result, they are likely to request more documentation, which means it can take more time and aggravation for mortgage applicants.
A borrower may back out of a contract because the appraisal comes in too low and the bank won’t make the loan. Sellers prefer this because they don’t have to worry about the bank pulling the loan at the last minute, or any of the other circumstance that occur with bank funded purchases. The loan may also fall through for other reasons like issues that come up during inspections.
Some buyers have little choice but to pay cash. We’ve had past clients that couldn’t get a new mortgage because they already have an existing mortgage on another house up for sale. Once the old property sells, they place a mortgage on the new property or decide to forgo the mortgage altogether to save on interest.
No Mortgage Payments
You’ll never lose a night’s sleep over mortgage payments. Mortgages represent the single largest bill Americans have to pay each month, as well as the biggest financial burden if income falls or if someone gets laid off. Years ago, homeowners would sometimes celebrate their final payments with mortgage-burning parties. Today, however, the average homeowner is unlikely to stay in the same place long enough to pay off a typical 30-year mortgage or even a 15-year one. In addition, homeowners often refinance their mortgages when interest rates fall, which can extend their loan obligations further into the future.
If peace of mind is important to you, paying off your mortgage early or paying cash for your home in the first place can be a smart move. That’s especially true as you approach retirement. Though considerably more Americans of retirement age carry housing debt than was the case 20 years ago, according to Federal Reserve data, many financial planners see at least a psychological benefit in retiring debt-free.
The Cons of Buying a House with Cash
All Your Eggs in One Basket
Paying for cash means typing up a lot of money in one asset class. If you drown your savings to pay for a house, you’ll be breaking one of the most important financial rule of diversification. In terms of return on investment, residential real estate has historically lagged behind stocks. That’s why most financial planners will tell you to think of your home as a place to live rather than an investment.
You’ll Sacrifice Liquidity
Liquidity refers to how quickly you can get your cash out of an investment if you ever need to. Most types of bank accounts are totally liquid, meaning that you can obtain cash almost instantly. Mutual funds and brokerage accounts can take a little longer, but not much. A home, however, can easily require months to sell.
You can borrow against the equity in your home, through a home-equity loan, home-equity line of credit or reverse mortgage. But all of these options have drawbacks, including fees and borrowing limits, so always be aware of the situation.
The Bottom Line
Paying all cash for a home can make sense for some people and in some real-estate markets, but make sure you consider the downsides too.
With the change of the season, leave winter behind and put a little spring in your step by starting the process of listing your home.
If you have been holding off for the “busy” season, the wait is over! Selling your home doesn’t happen overnight. Spring is one of the best times of the year when it comes to buying and selling homes in Cleveland.
Every spring, homebuyers flood the market in response to the slow pace of the winter and holiday months. In response, home sellers put their houses on the market with their gardens in bloom lush lawns covered in green.
In fact, the Cleveland real estate market is almost two months ahead of where it usually is. Our clients’ homes are moving fast, and there is simply not enough inventory on the market.
We are seeing a steady flow of prospective purchasers. Foot traffic in our current listings is strong, and open houses have been well attended. Our Google Analytics of the Young Team website are indicating a steady flow of visitors. These buyers are ready and out looking for the right home that fights their needs. Inventory levels are low, and in some areas there are not enough homes for sale to satisfy the number of buyers in the market.
WHY SHOULD YOU CONSIDER SELLING IN THE SPRING?
- Supply of ready, willing, and able buyers is the highest in the spring
- More daylight meaning homes will typically show better
- Buyers typically get their income tax returns during the spring which can be put towards the purchase of a home
- Landscaping and curb appeal during the spring is better than the fall or winter months
Check out these things you should do before listing your home. It’s not too late to get these done! Most of our clients get their home-to-market list done in two weeks, right before the listing hits the market.
GET SPRING CLEANING DONE
As you know, spring is a great time to get your house cleaned up and ready for the busy season. Make sure your house is in tip-top shape early in the season to make sure your home stands out to potential buyers. We know keeping the house clean and presentable is no easy feat, but it reduces the stress when you’re ready to list.
DON’T WAIT FOR THE HOME INSPECTOR
Consider a Professional Inspection: It is well worth having an inspection completed prior to selling your home. This way, you are well-prepared and will know if you have any additional repairs to make.
We recommend to all our clients that they hire a home inspector to help identify early problems early on. These things may pop up during the real inspection and could delay your closing or scare buyers altogether. Fixing problems before the home inspection is usually cheaper and more cost effective in the long run.
Improving the quality and value of your house is the best way possible to ensure your home is sold. They can be as simple as adding plants to the yard, fixing a fence, or painting. Generally, we find buyers like to see a list of improvements and upgrades to show value. No matter which upgrades you choose, they all will work together to make your house even better than it is now.
BOOST YOUR CURB APPEAL
Most buyers have already made up their mind before entering the house, so focus on your curb appeal! Tend to those overgrown bushes, and check shutters and window trim. Make sure your address is clearly visible, and that window coverings are hanging evenly.
HIRE A SEASONED REALTOR
Experienced realtors know the market and your neighborhood- that’s why they’re seasoned professionals. Finding a realtor in Cleveland with established marketing channels, local expertise, and proven results will help the entire process go smoothly and relieve the burden off you. Hiring a team will only help you that much more, as they typically have dedicated individuals to do the work for each step of the selling process.
A seasoned agent will be able to assess and accurately be able to price your home correctly. This is important if you want to sell your home during peak season when the majority buyers are entering the market.
FIND THE RIGHT HOUSING COMPARABLES
This step you can leave to us. It’s important to not price your home above last years highest selling price point. While that is an indicator of how the market may behave, it’s more likely that price will be out of most buyers’ price ranges. Putting your home on the market with an accurate and fair price early in the season will prevent drastic price drops and future hardships, especially if you’re looking to move before school starts in the fall.
A fair listing price is one of the leading factors of a home’s sale success. That is why you need to find the right agent who has the experience and knowledge of pricing in your area.
Carefully consider how much time and money it will take to bring your home to market. Write up a timeline, prepare a realistic budget for repairs and upgrades, and keep an eye on your competition. If you select a Realtor in advance, they can help you prioritize your list and make key decisions.
Hungry buyers are out now looking to get a jump start on the busy season. If you’re a home seller there is no reason you shouldn’t be listing your home now rather than later. To maximize your sale price, stand out from the competition and sell quickly.