Buying a home with cash means paying its full cost without taking a loan or credit, or any type of financial help. It means paying the full amount from your own pockets via money transfer, a cheque, or hard cash.
Paying in cash has several benefits over the mortgage and other credit options such as big savings, no interest, and total ownership at a lower cost although with a few minor drawbacks.
We shall talk more about the pros and cons of buying a home with cash but first let’s understand-
What is the process of buying a home with cash?
The process of buying a home with a cash payment is rather simple and it all starts with having enough money in your account since you won't be borrowing any from a bank or lender. The source of the money would strictly be your savings, investments, or any other liquid funds that you might have for instant availability. If you're looking for a secure place to keep your funds, you may consider top nationwide banks, where you can trust your savings and have easy access to your liquid funds when needed.
Once you have the funds ready, it’s quite simple from thereon, similar to buying a house with a mortgage, except for the liabilities that come with the latter.
Moving on, buying a house with cash can save a significant amount of time it takes to process and close the deal which in the case of a mortgage can take over a month. But with cash at hand, a week or two at maximum. And this brings us to our first advantage of buying a home with cash, i.e.
Advantages of buying a home with cash
1. Faster sale & negotiation
Since cash transactions are almost instant, it can give you an upper hand in negotiating the purchasing price of the property should the seller be in a hurry. Plus it also saves the time to do the necessary paperwork and legal formalities. Thus closing the sale at a much faster rate than when buying a property through a mortgage.
2. A competitive edge in the market
Sellers prefer dealing with parties with cash at hand for a number of reasons. First- they don’t have to worry about the financial health of a buyer, like any last-minute financial fall or crisis, and secondly- don’t have to wait for the loan approval/ refusal.
3. No mortgage, insurance, or interest, hence long term-savings
Another great advantage of buying a home with cash is the total savings that one can make. From not needing to go through the lengthy process of a loan approval, to avoiding all the costs and fees associated with the mortgage process. And that includes the monthly mortgage payments, insurance fees, and interest rates that you’ll otherwise have to pay for years or decades to come.
4. Lower closing cost
Speaking of savings, the lower overall closing cost is yet another benefit of paying with cash as you won’t have to pay for additional charges such as lender fees, application fees, loan processing fees, and title insurance policy.
5. Complete and immediate ownership
Paying the amount in full will also ensure that you get full outright ownership of your home since there is no mortgage lender involved in the first place. This means even if you lose your job or source of income, you won’t have to worry about losing your home.
Disadvantages of buying a home with cash
1. Less cash/ liquidity
Depletion in your account balance is normal after you’ve spent a large amount of your savings on the payment of your house. What’s worrying though is the nature of investment which in this case is non-liquid, meaning you cannot cash it out as quickly as other liquid funds such as mutual funds and stocks dividends, thus reducing your financial liquidity.
2. No tax deductions
Since you won’t be using any mortgage plan to pay for the home, you won’t be eligible for mortgage tax deductions either, which is a sound way of reducing taxable income.
3. Can’t go upside-down
Since you have not borrowed a mortgage loan; you won’t be able to go upside-down on it either. And while you’d be able to stay in your home for as long as you like, you may have to take the hit or financial loss should you choose to sell it when the market is tight.
4. Additional costs
Although cash payment would definitely save you from paying lender related costs, you’d still have to pay for additional costs associated with owning a house on an annual basis. For instance property tax, property insurance, homeowner association fee, utility bills, repairs, maintenance charges and so on.
Purchasing a home outright with cash can bring numerous benefits to your doorstep. However, it can significantly deplete the majority of your life's savings. Hence, it is crucial to maintain a balanced budget by allocating a portion of your savings for unforeseen circumstances should you decide to make a cash payment.
If managing such a financial commitment proves challenging, rest assured there are various strategies to secure a home loan after the purchase of the property. These include delayed financing, cash-out refinancing, obtaining a home equity loan or line of credit, or opting for a reverse mortgage plan, provided you meet the age requirements.
Specifically, if your sights are set on a cash purchase in the vibrant city of London, it is imperative to seek professional guidance before finalizing any decisions. Partnering with a reputable real estate broker can help you navigate the complex property market, ensuring a smoother transaction and mitigating potential complications.