Cash buyers hold a benefit in depressed housing market

Home values have fallen so far that more individuals are buying properties with cash. Most home buyers need a home loan. But increasingly that is going up against buyers that use cash as an advantage. However cash versus mortgage doesn’t necessarily have to be a done deal if the borrower does their homework.

Cold, hard cash is king

The National Association of Realtors reported an all time high in the number of deals in February in home sales done with cash. Cash buyers have become formidable opponents for many home customers financing their deal with a mortgage. The real estate market has more cash customers because many would rather have a home as an investment than stock. The investment in rentals has also been attractive to lots of people.

Last year, 59 percent of home customers purchasing as an investment paid cash. Since a seller knows that there probably won’t be difficulties with closing on the home, most are more willing to accept cash. When choosing between a buyer that needs financing and a lower cash offer, most are willing to take the cash. Cash usually wins when the bank is the seller. Banks choose the safest option when attempting to get homes off the books.

The best way to beat cash

In 2010, 25 percent of home sales were foreclosures. According to Fannie Mae, short sales increased also. This number increase 128 percent last year. Any seller with equity does not want a financed buyer. Cash customers are preferable. Equity holders are not under pressure to take whatever they can get and will wait for the best offer. Financing buyers can also compete with cash by getting pre-approved for a mortgage. Being prepared with a high down payment also evens the odds. When getting the home, do what the seller wants. This could help a lot. Make the deal clear by having a detailed contract ready while being respectful. When the time comes, act easily. Do not give up hope as a financing buyer. Cash deals aren’t always perfect either.

Financing or cash

Additionally to getting a better deal, paying cash to buy a home has several advantages. Sometimes the available returns on investments are lower than personal property rates. The interest money saved ends up being good for the buyer. The buyer only loses their own money if the value of the home goes down. A 10 percent drop can really hurt a mortgage with 20 percent down. Fifty percent of the down payment ends up lost.

There are advantages mortgages have though. Sometimes you purchase a home with cash. When this takes place, no other investments could be made with that money. There is also leverage here. If the value of the home goes up, the mortgage holder gains a higher percentage than the cash buyer. There are tax deductions for home loan interest too. The loan cost is lowered this way.

Citations

MarketWatch

marketwatch.com/story/how-to-beat-a-cash-bidder-in-the-housing-market-2011-04-13?pagenumber=2

WiseBread

wisebread.com/the-pros-and-cons-of-paying-cash-for-a-house

Short Sale Daily News

shortsaledailynews.com/short-sales-up-128-percent-in-2010/