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Paying Cash Versus Financing: Which is better for buying a home?

A crucial question to ask yourself while buying a home is whether to finance it or pay in cash. Going by trends, more than half the home purchases made in Miami are done using cash.

Let’s take a deeper look at the intricacies of the home buying process and how the mode of purchase fits in the whole picture.

Financing

For those who plan to finance the purchase, the first step is to get the loan pre-approved by the bank. Getting pre-approved for a mortgage would help you narrow down the price range, so you could start searching for a house, knowing exactly what you should be looking for.

Usually, the bank would assess your income against expenses ratio and your credit history before approving a loan. The loan amount that’s approved is what you could use for buying the home. The interest on this loan amount, as well as the principal amount should be paid back over the next 15 to 30 years.

Paying by cash

If you have enough cash to make the purchase, the procedure for home buying is different. Before we get into that, let’s look at some of the benefits of paying cash over taking out a loan.

  1. You won’t have to pay additional amounts of money as interest
  2. It makes your bid more attractive to sellers
  3. If there’s a bidding war on a property, those paying by cash could get an upper hand
  4. You could conclude the whole deal much faster than with a finance offer
  5. The buyer could sell the property fast if so they wish since it isn’t leveraged

 

The following are the steps involved in buying a home with cash:

Writing up a purchase agreement

The purchase agreement would have all the details of the sale in writing, including the price of the home, the details of tax handling, how much is in escrow, details regarding who should pay the closing costs and other contingences relevant to the sale. Once the agreement is finalized, you should have it sent to the seller for review. Adjustments shall be made if necessary. After that, you should sign it and send a final copy to the seller.

If you need assistance with drawing up a purchase agreement, just contact us. Our local experts would be glad to help you.

Arranging the funds

If the cash meant for the purchase is parked overseas, you should know about the following while transferring money to America for real estate investment purchases.

Talk to your bank: A foreign exchange broker is probably the best option for such overseas transfers. But still, you should talk to your bank first. Certain banks provide a decent exchange fee comparable with foreign exchange brokers.

If you are going with a foreign exchange broker, better use a trusted brand such as USForex Money Transfer, World First, or Venstar Exchange. These brands generally offer low exchange fee and best of all, no hidden charges are involved. Compare the rates from different brokers before settling on one. There is at least 2 to 3 percent in the processing fee to be saved this way.

Go for one-time transaction: By transferring larger sums, you attain a better exchange rate. So, it’s better to transfer the whole amount that is needed at one time, instead of making partial transactions.

Waiting for the seller’s response

Once you have made a viable offer, the ball is on the seller’s side of the court. Once they have signed it, you would officially be under contract. This takes you one step closer towards buying the home.

Titles and inspections

Usually, the seller would contact the title company to hasten the closing process. As the buyer, you should arrange for an inspection on the property, so you know exactly what you are getting. If you are taking the mortgage route, a contingency should be included in your contract which states that if something is off during the inspection, you could back out of the deal at any time before the actual purchase.

If you are buying a space that needs a lot of fixing up, an inspection would give you a prudent idea of how much investment you would have to make for remodeling. On the other hand, if no remodeling is planned, an inspection would still uncover hidden problems, if there are any. This would prevent unwanted surprises later on.

Sending the check

Once you are satisfied with the inspection, it’s time to send in the check. First, instead of sending a check for the entire amount, you should write an escrow check to the title company. Once you have sent it, even if you back out afterwards, the seller would get to keep the escrow.

The escrow check is different from the down payment. Also, you should be aware that not all cash payments would have a down payment option.

Closing the deal

This is pretty straightforward. On a predetermined date and time, you show up at the title office. You then write out a check for the price of the house, subtracting the money you paid as escrow. You may have to pay some closing costs as well. You will then have to sign the relevant documents, and the key to the house will be yours!

Having enough cash to buy a home requires intense self-discipline and patience. But the hardship is worth it, given how buying with cash has a lot of advantages over financing with a loan. On top of this, it opens up many investment options.

To know more, give us a call today!

 

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