Last Updated on September 1, 2022
Many people are finding they now have enough money and/or equity in their current home to pay cash for their next house.
Coming out of the recession, cash investors anxiously bought up “starter” homes in good condition. The idea was invest a minimum into these homes, rent them for a few years, and then sell at a profit once the market had fully recovered.
In Q1 2014, 43 percent of all home sales were cash transactions. By June 2015, the percentage of cash sales had dropped to 31.3 percent, as investors had moved away from many markets when traditional buyers returned. But cash sales still remain a major part of the real estate mix in many parts of the country.
If you are considering paying cash for your next home, it’s important to do your homework to decide what’s best for you.
- Financial situation. Paying cash for a property may drastically decrease your liquidity. This can be a problem if you are or will be supporting children through college or caring for an elderly relative.
- Tax implications. If you’ve lived with a mortgage for many years, don’t forget that with a cash sale, you’ll have to pay taxes, insurance and maintenance costs on your new home – out of pocket.
Also, you won’t get a mortgage interest tax deduction on your annual Federal tax return.
- Negotiating power. If you can close with cash, it may give you negotiating power on the list price, based on the sureness of the sale and flexible closing dates.
If your seller needs to close quickly, your cash offer may be an advantage. A cash transaction may also be advantageous if you need a few months to close while you sell your current home or finalize your move.
- Closing costs. Cash buyers may also save on closing costs incurred in attorney, application, escrow, origination and other fees that become optional with cash.
As a cash buyer, it’s up to you whether you want to buy title insurance. Many Realtors® would advise in favor of that as well as an appraisal and inspection.
It’s always best to consult with financial and real estate professionals to help you evaluate the dollars and sense of buying a house with cash. Your Allen Tate Realtor will be happy to help you look more closely at the pros and cons for your individual situation.
