How to buy a house with cash
Whilst buying a house with cash can make the property sale move faster, in general the process doesn’t vary too much from a mortgage-based property sale.
The biggest difference between a cash transaction is the elimination of the mortgage lender and/or broker. This means you will not apply for or arrange a mortgage.
To gain a better understanding of the house buying process take a look at our previous blog ‘how to buy a house.’ As a cash buyer you can skip step 1: deposits and step 2: mortgages.
Advantages of buying a house with cash
There are a few advantages that come with being a cash buyer, the most obvious being the elimination of interest gained on a mortgage and the burden of monthly repayments. Cash buyers can also benefit from the following:
- Cash buyers only – Certain properties may be advertised as purchasable by ‘cash buyers only.’ This means the seller will not consider buyers that require a mortgage to complete the sale. In this instance, being a cash buyer, with funds readily available could work in your favour.
- A smoother sale – Relying on a mortgage allows for issues and delays with the property sale, as the lender can reject or take a while to process your application. As a cash buyer you do not have a reliance on a lender, you’re also not reliant on another means of acquiring funds, e.g. from a previous property sale.
- Seller appeal – Cash buyers are free of any complex chain, as they are not relying on a property sale before they are able to complete a new property purchase. Buyers without a complex chain prove very attractive to sellers seeking a quick sale.
- Security – Cash buyers can rest safe in the knowledge that they have bought their home outright, removing the worry of repossession should they encounter financial difficulties in the future.
Disadvantages of buying a house with cash
We’ve looked at the benefits that come with being a cash buyer, now let’s explore the pitfalls.
- Less liquid assets – Cash is the most liquid of all assets. Whilst property can be one of the most sensible investments, you will be exchanging a highly liquid asset (cash) for a less liquid, tangible asset. Before investing your cash in property you should assess the market and evaluate whether your money will work better for you if invested elsewhere. Using part of your cash as a large deposits to secure a mortgage could allow for lower interest rates, making borrowing more affordable and a part. You could then invest the remainder of your cash in a more lucrative opportunity.
- Sales aren’t guaranteed – Whilst being a cash buyer removes the risk associated with lenders and complex chains, property sales can still fall through. Sellers are unpredictable and reserve the right to terminate the sale.
- Rejected offers – As a cash buyer, you probably realise you’re in a strong position, benefiting from seller appeal. As a result of this many cash buyers often offer below asking price when purchasing a property, this can often backfire. Sellers that aren’t phased by a chain-free buyer, and are not in a rush to sell, might be willing to wait for a sale that meets or exceeds the asking price.
- Financial stability – Buying a home with cash might not be a sensible decision if you have to stretch yourself financially in order to afford it. Leaving yourself short of funds could be a problem should the property require repairs or renovating.