The Best Way to Buy a House: Cash vs Mortgage
Buying a house is one of the biggest investments people make. For many, a dream home is where they plan to live, probably for the rest of their lives. On the flip side, some people buy homes as an investment with the aim of selling or renting them out to make a profit. Generally, there are two ways of buying a home: cash or a mortgage. Each has its pros and cons, and it is up to the homebuyer to choose the one that suits them best.
If the buyer is using cash, the buyer pays for 100% of the house using money they have saved from income or any other source. According to financial experts, buying with cash prevents you from paying any interest. The catch is that all the amounts due must be cleared before the home is handed over to the new owner.
A home mortgage can be termed as a loan where the lender finances the home and other fees involved in the home-buying process. Usually, the lender liaises with the home seller and pays on behalf of the homebuyer. The repayment plan includes interest, and it runs for an average of 25 years. However, this might vary depending on the country you live in.
The bone of contention among many homebuyers is over whether buying with cash or getting a mortgage is best. To clear the air, this article will look at each of these options in detail in order for home buyers to make a wise decision.
Searching for a House
The process of buying a home is all the same whether you are buying in cash or with a mortgage. It starts with choosing where you want your home to be and then looking at all the options of homes in the area. It is best to check the property-related platforms such as magazines, social media platforms, and websites. They list homes and give contact information to inquire about more details. You could also visit a couple of open house shows in the area to see if there are homes that might interest you.
While hunting for your dream home, consider your budget, and only search for homes within this range. Many home-buying experts recommend putting luxury on hold and looking for a functional home that can be upgraded later.
With some options on the table, it is time to narrow the search down to the homes with more benefits. It is highly recommended that you use a professional agent to take you through this journey. They will definitely advise you on the best home to suit your needs. You can find a home with modern features and the best resale value even in the future. Actually, engage a real estate agent from the beginning to search for your dream home.
Buying a House with Cash
When buying a house with cash, you have more power to negotiate with the home seller to get the best deal possible. And this is where a professional property agent will come in. One of their abilities is professional negotiation skills, and you may find yourself saving a lot of money. If the deal is good and fair, you can proceed to the contract stage, where all agreements are made in writing for future reference.
A legal professional should be contracted, which is the norm so that both parties can enter into a home sale and purchase contract. It covers all legal procedures, and a fee is usually charged by the lawyer.
Paying for the House
Part of the contract is making the payment. There are different ways of making payments depending on the terms of the agreement. Some home sellers ask for a down payment when both parties are starting to draw up the contract. This is a commitment fee that hinders the seller from entering into a contract with another person. The rest of the money is cleared just before the house keys are handed over to the buyer.
Homebuyers are highly advised to pay via a bank and retain a copy of the bank’s receipt to act as a reference in the future. However, wire transfers, mobile money transfers, and the use of cryptocurrency is becoming popular these days.
This is the simple process of how to buy a house with cash, and now you are more informed. You can follow it at any time to enjoy the benefits. But one thing you should remember is that hiring a real estate agent has numerous advantages.
Benefits of Buying a House with Cash
- No monthly financial obligation – The biggest benefit of buying a home with cash is the absence of interest. And also, it means there is no monthly repayment for the next 25 years like in the case of a mortgage. This benefit directly applies to the homebuyer. You buy a home, start living in it, and have no monthly financial obligations such as loan repayment or rent.
- Negotiation power – With cash in your hands to buy a home, you have much more power to negotiate with a seller than someone who is buying through a mortgage. In fact, you might save up to 20% of the initial cost of the house through negotiations. Things get even better if you have a real estate professional to walk you through this step.
- More options – Compared to a mortgage that might be limited to specific houses, buying a house using cash gives you many options to choose from. Hence, you can carefully select a dream home to get the right one. You can easily say no to a house that does not please you even if you have just started getting into a contract with a seller.
- Quicker – If you are looking for a faster process of buying a house, buying with cash is the way. Just locate a house, like it, and pay. Using a mortgage or buying in installments is a lengthy process that might take you a long time before you are given the keys. We will see the process of buying a home through a mortgage shortly, and you can compare it.
Buying a Home Through a Mortgage
Now that you have seen how you can buy your dream home using cash, let us dive into the process of buying a house via a mortgage. First, it is worth mentioning that not everyone qualifies for a mortgage. And this is a big drawback that locks out many people. Banks and other lenders offer this loan selectively. Here are some of the qualifications.
- Stable employment, preferably by the government or known private businesses or organizations
- A stable bank statement that shows a consistent source of income from an employer or a stable business
- A strong credit score rating that illustrates your ability to repay the loan
- A young enough age that shows that you will still be working for the next 25 years
- Additional qualifications depending on the mortgage lender
The Process of Buying a House with a Mortgage
The first step of buying a house with a mortgage is to determine if you qualify for one and then identify a good lender. Generally, these are banks and other lending facilities. If you meet all their qualifications, then you can start the application process.
As the process is going through pre-approval, identify a home of your dreams in a location of your choice, and ensure that the seller accepts the financing option. In some cases, you might have to identify a house first before applying for a mortgage depending on what the seller accepts.
Just like in the case of buying with cash, it is highly recommended that you hire a real estate agent to walk you through the process of buying your home with a mortgage. It is a delicate process, and missing important details might lead to disqualification. The agent is also responsible for negotiating the best interest rate with your lender.
The other important steps are having the home inspected and appraised. The report will be given to the lender before the final approval of finances. These are usually crucial steps that are required by all mortgage lenders across the world. After this, they will approve your application in readiness to release the money for buying the home.
There is also paperwork just like in the process of buying with cash. You should use the assistance of a legal expert. The contract is different since it covers the amount of interest, the monthly installments, and the terms and conditions of the agreement. The last step is closing the deal.
Benefits of Buying a Home with a Mortgage
The biggest benefit for buyers is that they do not need to have all the money upfront to start living in a dream home. A lender pays for the house. In some cases, the buyer is required to raise a certain deposit like 10% of the purchase price. The monthly installments are usually affordable, and in many instances, it amounts to what you have been paying for rent.
So, is buying a home with cash or with a mortgage better? The answer lies with you now that you have all the insights. See, both have important benefits, but it all depends on what works best for you.