With the current mortgage rates, much higher than rates compared to the last several years, many homebuyers are intrigued by the thought of saving money on a monthly mortgage payment and on interest with the opportunity of an all-cash purchase.
An all-cash offer is also more appealing to a home seller as it can help things move more smoothly and quickly to get to the final close on the home sale. But before a homebuyer trades their hard-earned money for a Philadelphia property. It is good to do some research on the purchase process and whether purchasing a home with all cash is the best option.
Buying a home with cash
A homebuyer is able to use cash from various sources to purchase a home. This can include an inheritance, a cash gift, or personal savings. If you are saving up to purchase a home with cash, it is advised to keep this money in a separate account to ensure it is easier to keep track of during the purchase process.
Sometimes, a bank transfer can come with a delay, and there are regulations around moving large sums of money from one account to another or withdrawing large amounts of money. Having this money in a separate account helps you to be able to access other funds during the process for things you may need while you are waiting for the transaction to go through.
Homebuyers also need to provide proof of funds when offering an all-cash offer on a home. This is often submitted with the offer contract for the purchase of the property.
What are the pros and cons of purchasing a home with cash?
Pros
- The biggest benefit of purchasing a home with cash is that you can save a lot of money on mortgage interest.
- Another benefit of purchasing with cash is the ability to close on the home sale in a more timely manner. There’s no waiting for the underwriting process with the mortgage loan.
- Using an all-cash offer can strengthen your negotiation power with the homeowner selling the property.
- Purchasing a home with cash makes your offer look stronger and more promising in a competitive market. Should there be another homebuyer interested in the same home.
Cons
- A drawback to purchasing a home with cash is making sure that you have plenty of funds to cover all of the added costs of the home purchase process. A big surprise to many cash buyers is the need to pay property taxes on their own and to have to pay an additional property tax cost at the closing table.
- It is a good idea to make sure that you also have your homeowner insurance costs calculated and budgeted before closing on the home, as these are all out-of-pocket costs
- It could leave some buyers strapped for cash. If purchasing a home would deplete your savings dramatically. It may not be a great idea to purchase a home with cash just yet. Some homebuyers make the mistake of saving enough for the purchase price of the home and immediately shopping for a home. But a home costs much more than the purchase price, and it is never a good idea to deplete your accounts for the purchase of anything large, including a home. It is best to make sure you retain an emergency fund as well as at least 6 to 8 months of living expenses, and not spend every last dime on the purchase price of your home.
If you would like to purchase a home sooner rather than later to save on the list price of the home, it could be a good idea to finance a portion of the home purchase through a mortgage loan. For example, you might put cash into 50 to 75% of the home price and mortgage 25 to 50% of the rest of the cost to retain a good cushion in your bank account for living expenses after you purchase the home. It is always best not to drain all of your liquid assets, even if it is to make an investment in one of the best money investments, which is real estate.
If you are planning to purchase a home in Philadelphia, the team at Victory Real Estate is here to help. When you are looking for a Philadelphia home, you want experienced Philadelphia real estate agents who go above and beyond to make sure your needs and wants are met in finding the ideal home. A home is a large investment that not only helps you build wealth but also becomes your shelter and your safe space. Working with the team at Victory means working with a team that cares about you and helps you to find a home you will love. If you are ready to buy a home in Philadelphia, contact us today.