5 Benefits of Buying Real Estate with Cash
Is it a good thing to be a cash buyer? In almost every case, the answer is “Yes!” If you have the cash to purchase a home, the real estate process becomes very simple and straightforward.
You locate the property, open escrow, sign all the disclosures, and bam! You’re done with the keys in your hand after closing!
Normally, there are a lot of contingencies that are associated with an offer, and buying with cash can eliminate most of them.
So, let’s say you’re buying a home in an expensive city like Los Angeles. A million dollars will buy you decent family home. So, why hand over one MILLION dollars in ONE transaction, instead of spreading it out over 30 years of manageable payments?
Well, there are many benefits to paying with cash. Here are 5 benefits to purchasing real estate property with cash:
#1 Avoid the Closing Costs
Usually, there are closing costs involved with a transaction that has a loan. When you are borrowing money, the bank is providing a service and expects to be compensated. Typically, the closing costs are 3% of the purchase price.
So, in our example of a home with a purchase price of $1,000,000, that comes to $30,000 in closing costs. That’s right - $30,000 just in closing costs.
With a cash offer, you can almost completely eliminate your closing costs. Since there is no lender involved, that means the title insurance can be skipped. Using the lender’s title insurance is usually required when there is a loan. This can amount to thousands of dollars, in many cases.
In addition, there is no mortgage insurance, no loan doc fee, and a much lower escrow fee.
#2 Avoid the Appraisal Fee
Another cost that can be eliminated is the appraisal cost. While an appraisal is only a few hundred dollars, it is still one less fee to pay.
Normally, an appraisal is done to satisfy the lender.
A lender will always require an appraisal, but with a cash offer, the buyer has the option to waive the appraisal inspection requirement. This should only be done if the buyer is comfortable with the offer price and thinks the home is worth what he’s offering.
Of course, your real estate agent can evaluate all the market data and price comparables before making that decision. If there are any doubts about the home’s worth, the buyer will still have the option to have an appraisal done.
#3 No Loan
Let’s be real. Having to qualify for a loan and the possibility of being rejected is extremely stressful.
Not needing a loan will save you both time, money, and mental anguish. As a cash buyer, you only need to provide proof of funds. Paying with cash means you can also bypass the verification of employment and someone checking your rent history.
Securing a loan comes with many costs that you will not have to deal with or pay.
There are no loan origination fees. These are fees that are associated with creating the account and processing the loan. They are calculated based on a percentage of the loan amount.
How lenders arrive at the percentage will be based on how many “points” they charge. Typically, a “point” is one percent of the loan amount as their fee, although it can vary.
Let’s look at our example of a home with a price of $1,000,000. If the loan has one “point” that means that the loan fees will come to $10,000!! As you can see, these fees will increase depending on how many points are associated with the loan.
#4 No Interest
However, the biggest benefit by far to cash buyers is the fact that you don’t pay interest on the purchase price of your home. If there’s no loan, there’s no interest.
This is a big factor because paying the interest on a home loan with a 30-year term can really add up over the life of the loan.
Even with low-interest rates, you are paying an annual percentage rate on your money. This is why paying with cash, when possible, becomes so attractive as opposed to making payments. Let's put this concept into terms we can understand by using our example again.
We have a 30-year loan, a $1,000,000 purchase price, at a 4% interest rate.
Over the course of the loan, you can end up paying 70% of the loan amount in interest. On a million-dollar loan, that’s $700,000. This is an enormous amount of savings that buyers enjoy by paying with cash.
#5 You Can Close Quickly
Purchasing a home takes time, especially when there are other parties involved. There are time frames tied in with a deal that involves a loan.
When you are buying with cash, you are not dealing with a lender. Since an appraisal is not required, you are not dealing with an appraiser. Paying with cash also removes the usual time frames associated with the loan and appraisal.
As long as you have the proof of funds, you can close quickly. How quickly? With cash, you can close in as little as 5 DAYS. That’s right.
This is another convenience of paying with cash.
Final Thoughts on Buying a Home with Cash
If you are a buyer in a position to pay with all cash, why not take advantage of all the benefits?
Again, you can save a massive amount on fees that you won’t be paying. There are no closing costs, you can avoid the appraisal fee, and lower your escrow fees.
There is no hassle getting a loan and no interest to pay on it.
So, if you want to move quickly and save yourself a LOT of money on interest — pay cash! Everyone loves a cash buyer.
Most of the time, cash buyers are market-savvy and very aware of the benefits and drawbacks of purchasing with cash.
As an agent, embrace those cash buyers. You will have a much smoother escrow, quicker process, and a much shorter time till you receive your commission check.
Real Estate Agent and Trainer, Robert Rico, explains the advantages of buying real estate property with all cash. Do you want to see more video blogs? Subscribe here!