In the first quarter of 2015, nearly 40 percent of properties in the UK were purchased with cash. That is, nearly 4 out of 10 homes were sold without the need for a mortgage.
Given this high number, thousands of people today are open to the idea of buying houses in cash -”something that wasn’t very popular few years back; and one could wonder why. Perhaps people have waked up to all the benefits that there is to buy properties in hard cash, or maybe its list of demerits has shrunk.
Regardless, have you been toying around with the idea to join the proud â€˜cash house buyers club, weighing in all the pros and cons on separate columns, we’re here to help!
There’s NO either this or that solution
Should you pay in cash for the house? That’s the question with no definite answer. While sure it has a string of benefits and detriments that you can weigh in, it all really depends on your individual case; your personal financial standing, your job, salary, family size, credit history, the amount of liquidity you want to enjoy, other investment plans and so forth. Sorting out your individual needs and requirements, here’s a list of pros and cons of buying property in money that you should consider.
Advantages of Using Cash to Buy Home
- No interest to pay
What makes buying real estate using cash a complete no-brainer for many is NO interest; no interest on loan or mortgage. This helps save a large amount. What you have saved can even quadruple if you thoughtfully invest in the stock market and other investment avenues.
- You get a cheaper deal
Many sellers, to avoid all the lengthy juggernauts, prefer direct cash. And of them, many, to complete the transaction quicker, are often ready to sell their properties at a pretty low price than listed. The more hurry the seller is for cash, the cheaper deal you can strike. So you can enjoy sweet discounts when using cash.
- Very less paperwork
When paying with cash, nobody would pull out your credit history; which means very less paperwork. Also if you have a bad financial standing, hardly would it affect your prospect of buying the property; something which is not possible when using loan or mortgage. Of course, there are other paperwork requisites that wouldn’t be needed now.
- You get to be house owner
The sense of complete ownership of the house is unmatched. You enjoy much security from the uncertainties. And this is what you get when paying for the property in hard cash. You become its sole owner. And you can do with it whatever you want; partition it, rent it or/and sell it.
- Less concern regarding market condition
The mortgage rate fluctuates depending on a host of factors, including the market variations and economic condition. When you buy a house in full cash, you don’t have to hold your tongue in cheeks when the market analysts predict a downturn ahead; neither will you have to open market section of newspapers every other week hoping not to see any bad news. You don’t have to care much about the market condition.
- 100 percent equity
You’re the lone owner of your house; meaning, you enjoy 100 percent equity. You can do anything with it ”anytime you want. Aren’t things looking good financially? There’s some emergency and you want to put it on a quick house sale for cash? Regardless, rent the place. Sell it, if needed. You don’t have to answer to anybody. You’re your own boss.
- Getting mortgage is not easy
Even if you don’t want to pay in cash, should you know, getting a mortgage is not easy -“ or at least not guaranteed -“ even with a solid credit history. The biggest problem is when the required home appraisal doesn’t reach the price you have paid; the lenders might pull out the mortgage. Also, mortgage approval process in UK takes longer these days, which is just a pain if you want to sum down the whole process quickly.
Disadvantages of Using Cash to Buy Home
- Less Liquidity
The downside of paying in lump-sum is illiquidity. In the case of emergency, it will be harder to free up that money and that too at the right amount. While in the case of the mortgage, you will have enough money to put in other investment avenues and enjoy more return.
- High Risk
Aside less liquidity, stocking such a large amount in one place is often considered a poor decision; given diversification is a rule that people holds close to their heart when investing. What if after paying in cash, property price dips by 15percentt? You lost money, which could have been prevented had it been paid using the mortgage.
- Could take time to find a sweet deal
Even with less paperwork, the whole process can take a tad longer. While the transaction itself can be completed quickly, finding a sweet deal may take time; particularly if you have specific demands and requirements since not everyone would be ready to deal in such a large amount of cash.
- The opportunity cost
The loss of other alternatives when one alternative is chosen. If you had the money, you could have easily invested in other avenues and made more in return than what loan interest and mortgage interest now costs you. The stock market and Forex are always the great choices that, when played well with professionals by your side, always guarantee a decent return, even to the novices.
Still confused? Here are 13 important questions you should ask yourself immediately to know it for sure if you should put your all cash in buying the house or should you go with mortgage.
- Why do you want to pay in the cash? (You need to know why?) having enough cash is not a good reason in itself. You need something more than that. Chances are, if you answer this honestly, you won’t need to consider anything else)
- Do you have enough cash that even after buying you have sufficient left to meet any emergencies? (Keeping a finance cushion is a sane finance management tip; always have emergency money in your bank. You never know when you might need it)
- Is the seller ready to deal in cash? (if not, you either want to settle with the mortgage or keep looking)
- Since paying in cash, are you getting any discounts? (Believe it or not, paying in cash always means cheaper deal and decent discounts)
- Do you have a bad credit history that you don’t want to bring up? (Bad credit history, like mentioned, would make getting mortgage very difficult”at least if you’re in hurry)
- Can you get the mortgage in the first place? (if not, the whole talk is pointless; you’ll have to go with hard cash then)
- What is the mortgage rate? (Of course this is the foremost factor that you must consider)
- What is the economic or market condition? (if it’s bad, mortgage rate might increase, which would make your cashless deal a bad one; using cash is the way to go)
- Are you interested in other investment avenues? (other investment avenues that pay high”in short-term; not long-term bonds; likely stocks and currency)
- Can you make up the cost of mortgage or interest rate with returns from your other investments? (The calculation isn’t as difficult as it might look. Like if you’re a proficient Forex trader and if the market trends are looking bright ahead, guesswork says, going with mortgage is the right decision)
- Is there any legal obstruction when using such a large amount of cash at once? (Depending on where you live and your personal financial standing, there might be; you might want to consult professionals)
- How are people around you buying properties? (This is one important factor, especially if you’re a novice in real estate investment. If more and more people are using hard cash, aside the fact that they have cash in the first place, there must be many other reasons; they know something that you don’t know. So look around and see how people are buying. Don’t blindly follow them though.)
- What your broker is telling you? (Going alone here is a not a very recommended idea; having professionals by your side is important. Given the broker understand your needs and requirements, your financial situation and the (anticipated) market trends, what is he saying?)
These are 13 important questions that you must answer to yourself, aside factoring the mentioned 11 pros and cons, to know for sure if using cash to buy a new property is the way to go. Also, the same amount of considerations is required if you’re looking to sell your property.
So, don’t rush to the sell my house fast and buy my house fast schemes blindly. Think things through and weigh all the pros and cons before deciding anything.