As you get ready to buy a house, you’ll doubtless have a lot of questions, especially if you’re a first-time homebuyer. One of the most important: What’s the best way to pay?
If you have the financial resources to purchase a home without taking out a loan, that may seem like a great option. After all, without taking time to complete the mortgage process, won’t you be able to make a fast and appealing offer to the seller?
Before making your final decision, you should step back and evaluate all your options. There are pros and cons to cash offers and mortgages. Considering them will help you pick the option that’s right for you.
There’s also another variable to keep in mind: In today’s tech-enabled real estate market, there are channels that can change the whole process for making an offer on a home. Services such as Bungalo can deliver an experience with more certainty, clarity, and less competition than the conventional home buying steps.
Before diving too deep into the ideal way to find a house and make an offer, however, it’s ideal to weigh the positives and negatives of cash versus mortgages.
A cash sale is a form of home buying without a home loan or mortgage. Despite the name, a cash offer doesn’t involve a literal pile of dollar bills. While you use a wire transfer or a check to transfer the funds, the deal is basically as simple as if you were paying cash.
Of course, most people who are simply buying a house to live in will apply for a mortgage instead of making a cash purchase. This comes down to the simple fact that a cash buyer must have enough money free to pay the full asking price and a cash flow to replace it. That’s a lot of money; the average person won’t be able to part with it all at once.
A buyer interested in accepting a cash offer may therefore end up dealing with iBuyers or real estate organizations interested in reselling houses en masse or using them in an investment property portfolio. These companies use corporate funds to buy houses in cash. Alternatively, people who are trading in larger, more expensive homes for modest houses may have the cash to make an offer.
Now that we’ve covered the basics of cash offers, what are the major pros and cons?
- Since cash offers involve fewer parties — with no mortgage lender involved to inspect the property or determine how much to loan — the closing process can be quicker and easier.
- Cash offers are easy for sellers to accept, provided the cash buyer can provide proof that they have sufficient funds in the bank.
- Some elements associated with a mortgage loan, such as mortgage insurance, don’t apply to cash offers.
- Since making a cash offer involves paying the whole price for a home without a loan, a large segment of individual buyers won’t be able to afford this method.
- Buying a home in cash ties up a large amount of money in the house, so less is left over to pay for other expenses.
- Cash buyers take all the risk of the purchase on themselves and must guard against potential problems such as fraud.
In general, making a cash offer on a home is a way to take some of the time and uncertainty out of closing the deal. It is, however, limited to the relatively small segment of homebuyers who have enough cash on hand to meet a seller’s asking price without a home loan.
Getting a mortgage loan from a lender is the standard way of buying a new home, albeit one that comes in many varieties. You can apply for a conventional loan or take advantage of special mortgage products like a jumbo loan, VA loan or FHA loan, depending on your targeted house and eligibility.
If you apply for prequalification and preapproval, you can receive an approval letter from your chosen lender during the home search, making it clear to sellers that your credit score and financial situation are strong enough to make an offer that meets their asking price. This is a sound approach to mortgage financing, as it can take away some uncertainty as you get closer to your closing date.
You can play the field when applying for a mortgage, seeing which lenders are able to offer you the best terms regarding monthly mortgage payment amounts, your mortgage interest rate and more. Not every loan is the same. By comparing what banks are willing to extend, you can protect your financial situation in the years ahead.
So, what are the pros and cons of this method of home financing, especially when put up alongside cash offers?
- The variety of mortgage loan products available allows homebuyers to match their requirements with a loan to fund their purchases.
- With an approval letter, it’s possible to convey how much capital you have to work with when approaching a seller.
- Sellers won’t necessarily choose a cash offer over a mortgage financed offer. A buyer willing to outbid the competition can defeat a cash buyer.
- Extra time and paperwork come with applying for a mortgage, including a credit check that can briefly impact the buyer’s credit score.
- If a home search goes too long, an approval letter can expire, meaning the prospective buyer has to apply for an extension or reapply for preapproval.
- Closing a home sale can involve an appraisal and inspection process, extending this part of the sale.
Applying for a mortgage is the standard in the real estate space because it works, and has for years. While less splashy than making a cash offer, getting a mortgage loan can still get you the home of your dreams relatively quickly, especially with prequalification and preapproval.
Buying a house in cash vs. mortgage is a big decision. That doesn’t mean it has to be a stressful hang-up in your home buying process, however. In most cases, the choice will be made for you. Unless you have a large reserve of money in the bank, you’ll need to apply for some kind of home loan.
In a hot real estate market, as recently seen in many parts of the U.S., it can be tempting to lean toward cash offers. After all, with so many aggressive buyers attempting to make home purchases at once, this is a way to be quick and decisive, appealing to sellers’ desire for an easy closing.
You can still compete, however, no matter how hot the market is in your chosen area, and whichever method you plan to use to finance the purchase. In the end, the right choice for you will be the one that makes you feel most financially secure in the years to come — whether that means putting cash into the purchase or agreeing to loan terms.
One potentially overlooked option when buying a new home is to bypass the usual system of searching for houses on the open market and competing with other buyers. Alternative, modern home buying strategies, such as using Bungalo, allow you to combine some of the best aspects of cash transactions and mortgage loans.
If you’re buying through Bungalo, you’ve decided to buy a house in a different, more streamlined way, taking the best parts from various homebuying approaches.
Why is buying a home through Bungalo different than engaging in the standard approaches? The differences begin with the way you browse for available houses. You simply search through properties for sale on a user-friendly map view — including exclusive homes not yet listed anywhere else.
If you want to buy one of these homes, you simply submit an offer, without competing in bidding wars against other buyers. The purchase price is set based on other homes in the area, to ensure they are fair — you’re just paying for the home you’re getting, without the last-minute markups that can come with competitive bidding.
Buying a Bungalo home works as if you were applying to purchase a property through a standard loan method. The difference comes in the easy closing process — more so than a standard mortgage preapproval or cash sale, Bungalo will tell you directly whether your offer has been accepted, with no scramble to bid against competing offers.
The simplified closing checklist will guide you through all the steps needed to finalize a sale. Some of the most potentially stressful parts of home buying — bidding, waiting for the closing to complete — have been streamlined to make the experience a pleasure.
You can have peace of mind once you’ve moved into the new home, too. The houses are Bunglao Certified, which means professional inspectors have signed off on their integrity.
If a covered issue* does unexpectedly arise during your first 90 days in the new house, it’ll be taken care of at no cost to you. Being sure that everything in the house will work correctly can take some of the trepidation out of buying.
Are you ready to get started looking for your dream house? It’s as simple as looking at a map. With a mortgage preapproval letter from a lender or the appropriate cash assets set aside, you can turn your dream into reality in a few easy steps.
View listings in your area of choice to get started now.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.*Some limitations apply. See full list of Covered Items.