When you buy a home there are a lot of options open to you. For instance, you can buy a home by getting a loan, you can rent to own, or you can buy with cash. Now, as you have probably already guessed by the title, we are going to talk more about buying homes with cash. Now, it may seem like a simple concept, but the idea does have a few nuances to it that make it slightly more complicated than it appears. Today we are going to briefly go over what the difference is between traditional financing methods and buying with cash. We will then talk about the benefits of buying a home with cash, or being a ‘cash buyer’ as the agents say, and then we will talk about the way one would go about buying a home with cash. Before we being, however, it is important to note that we are not offering any legal advice here, we are simply trying to educate. Please talk to a financial advisor or your licensed real estate agent before deciding that this is right for you.
What does it mean to buy a home for cash?
For the most part, homes are expensive, as you are no doubt well aware, and with how expensive they are people tend to need help financing the purchase of one. This will usually come in the form of a loan from a bank, credit union, or lending agency. However, there are also options where you can rent to own where the seller essentially lets you pay them directly every month until you own the home. These are sometimes also called ‘owner financed homes’. Now, the third option for buying a home is to simply buy it outright— this is what is known as buying for cash or buying with cash/ being a cash buyer like we talked about earlier. People who buy with cash are the exception to what we said earlier when we said that most people have to borrow money to finance their home. These people have saved up money to buy the home in one fell swoop. This takes a lot of saving and a lot of time for most people, but it does happen.
Usually, a cash transaction doesn’t actually involve any cash so, I wouldn’t entertain the idea of satisfyingly handing over a large bag of bills to the owner. Most of the time, a cash transaction will involve a check or a cashier’s check. These checks can come from your checking or savings accounts, so don’t think you’ll have to actually handle all that cash yourself.
Benefits of buying a home for cash
There are lots of benefits for buying a house with cash. They can be financial, psychological, and so on, but we are going to focus mainly on the financial benefits. So, to really make sense of this issue, let’s talk about what happens to your finances when you buy a home with traditional financing methods— like a home loan.
When you get a home loan (or mortgage) you usually have to first provide a down payment, which can be anywhere from 10% to 20% or so of the total amount of the house. After you pay the down payment, you receive a loan from the lender for the remaining price of the home. However, you don’t just get a loan for that much, there is an interest rate associated with that loan (can be anywhere from 1% to 25% on average). The interest is essentially the fee to borrow the money. Each month, when you pay your mortgage payment, you will also be paying a little of the interest as well and the longer it takes you to pay it off the more you have to in interest. So, in essence, you have to pay more than the cost of the home to buy your home.
Now, on the flipside, if you buy your home with cash you don’t have to pay interest. So, the price you settle on with the buyer is the price you pay and that is it. Not to mention it is a onetime sale, not a 30-year process like with a mortgage.
How do you go about buying a home for cash?
The first thing you need to do when you want to buy a house for cash is to get the cash. The actual buying process is pretty easy, you just tell your agent that you are buying the house with cash and get the check from your bank.
Saving the money can take years unless you have a lot of excess cash each month, but what we suggest is that you save a little money off of each paycheck and store it away. It doesn’t have to be a lot, just be consistent. After a while, you will have enough money to buy a home with cash. However, we suggest that it may be a better idea to plan to buy your second house with cash, that way you have a house to live in while you are saving. Not to mention, you will have equity in your home which you will be able to convert into cash when the time comes. So, when you are paying your monthly payments, you are essentially putting money away in savings.
Buying a home is a complex process, but it is extremely rewarding. If you want to learn more about how you can buy a home here in the Boise area, please don’t hesitate to give us a call or send us an email today. Our licensed agents are great at their job and are always ready answer any questions you may have.