Over the past 40 years, cash buyers have paid about 12% less than those who use a mortgage. There are many reasons for the discount, but the main factor is the certainty that cash provides to sellers. Paying cash for a home eliminates the need to pay interest on the loan and any closing costs. Lenders don't charge mortgage opening fees, appraisal fees, or other fees they charge to evaluate buyers, says Robert Semrad, JD, principal partner and founder of the Chicago-based bankruptcy law firm DebtStoppers.
Not only can a good realtor help you narrow down your options, but they can also help you determine if the seller's asking price for the home is fair or not. While individual stocks and years can vary greatly, an investment of more than 30 years in an index fund with low fees would leave you with a much higher net worth than you would pay in interest on a mortgage of the same amount. Depending on how much you've saved and how much the house costs, you may be limited later on if you need funds for repairs, maintenance, or to help fund a life event. An experienced real estate agent can also help you create more attractive offers that are accepted and shorten the home search process.
Paying for a home in cash means that the buyer will transfer the money or issue a cashier's check on the closing day instead of going to a mortgage company. Kim is also the author of The Yellow Envelope, a memoir about the time she sold her house and traveled around the world. While there are several benefits of buying a home with cash, there are a few cases where you might want to seek financing. If you're considering buying a home with cash or applying for a mortgage, you can use Bankrate's mortgage interest tax deduction calculator to understand how a mortgage will affect what you owe.
There may be more productive ways to use money, even if you have enough cash to pay for a house directly. The first step to buying a home with cash is to make sure you have the cash in one place. You could be saving less than you could have earned if you had taken out a mortgage and invested the money you didn't spend on your home. If it will take you a decade or more to save enough money to pay cash for a home, you may want to consider getting financing so you can become a homeowner sooner.
If you love a house but have reservations about its location, think carefully before you decide to commit. The IRS doesn't care that someone bought a house in cash, except in the rare case that someone owes back taxes and the IRS wants to establish a lien on that person's assets. When you pay cash for a house, avoid paying all that interest, not to mention having a six-figure debt. If you invest a lot of money buying a home, you may not have money to cover basic expenses (such as furniture) or other living expenses (such as medical bills, car repairs, and vacations).