Better to Buy a Home with Cash or an FHA Mortgage?
April 28, 2024
Marketwatch.com reports, “The fact that higher mortgage rates haven’t pushed home prices down is hurting many would-be home buyers, particularly those who don’t currently own a home and hence can’t tap on that equity. Nearly 30% of homes sold in March were purchased by all-cash buyers.”
Should you consider forgoing an FHA home loan and buy the property outright? There are pros and cons.
Pros and Cons of Buying a Home or Land in Cash
Buying in cash does not necessarily mean you will get a big discount on the house. It’s all the same to the seller, who gets their money, either way.
In more competitive housing markets, the cash offer is more appealing to some because it may work faster than dealing with a lender. But it won’t necessarily earn you a better deal.
However, some borrowers make the wrong assumption about what it means to pay in cash. Even if your financials are rock-solid and there is no issue with the loan funds, seasoning them may be required depending on circumstances.
When? Typically if you choose to finance any portion of the real estate purchase, such as land, the structure, or both. Some borrowers may want to pay cash for a plot of land to build a home on with a One-Time Close mortgage, for example, but get a loan for the construction project. Money for the costs of the loan may require seasoning, also known as the minimum acceptable amount of time the money is in your account.
Bankrate.com notes, “Seasoning, for mortgage-related purposes, refers to the amount of time you’ve had funds in your bank account — specifically, the ready money to cover the down payment and closing costs.” That seasoning period for home loans may run between 60 and 90 days.
Appraisals and Inspections
Some get excited over the prospect of not submitting to an FHA appraisal and saving the money needed to get that appraisal. But when buying a home in cash, you need to determine whether the seller offers a fair price, which the appraisal is meant to show.
You also need to ensure that the home is defect-free or that any problems are correctable and can be brought into compliance with local code.
That is the job of an inspection, not an appraisal. Those who think paying in cash will save them these costs don’t fully understand the nature of these expenses or why they are needed.
When to Pay Cash
A home loan is a better option for those who don’t plan on staying in the home very long.
Paying cash is better if you plan a long-term occupancy and don’t want to sell or move anytime soon. The savings you realize over the long term by not paying interest far outweigh any short-term savings you might get by paying in cash but selling or moving a few years afterward.
Paying cash is a long game in terms of saving money. Those who anticipate job moves, increased family size, or similar scenarios may do better to consider a mortgage instead.
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RELATED VIDEOS:
Home Equity Can Secure Your Second Mortgage
Consider the Advantages of Discount Points
FHA Limits are Calculated and Updated Annually
Should you consider forgoing an FHA home loan and buy the property outright? There are pros and cons.
Pros and Cons of Buying a Home or Land in Cash
Buying in cash does not necessarily mean you will get a big discount on the house. It’s all the same to the seller, who gets their money, either way.
In more competitive housing markets, the cash offer is more appealing to some because it may work faster than dealing with a lender. But it won’t necessarily earn you a better deal.
However, some borrowers make the wrong assumption about what it means to pay in cash. Even if your financials are rock-solid and there is no issue with the loan funds, seasoning them may be required depending on circumstances.
When? Typically if you choose to finance any portion of the real estate purchase, such as land, the structure, or both. Some borrowers may want to pay cash for a plot of land to build a home on with a One-Time Close mortgage, for example, but get a loan for the construction project. Money for the costs of the loan may require seasoning, also known as the minimum acceptable amount of time the money is in your account.
Bankrate.com notes, “Seasoning, for mortgage-related purposes, refers to the amount of time you’ve had funds in your bank account — specifically, the ready money to cover the down payment and closing costs.” That seasoning period for home loans may run between 60 and 90 days.
Appraisals and Inspections
Some get excited over the prospect of not submitting to an FHA appraisal and saving the money needed to get that appraisal. But when buying a home in cash, you need to determine whether the seller offers a fair price, which the appraisal is meant to show.
You also need to ensure that the home is defect-free or that any problems are correctable and can be brought into compliance with local code.
That is the job of an inspection, not an appraisal. Those who think paying in cash will save them these costs don’t fully understand the nature of these expenses or why they are needed.
When to Pay Cash
A home loan is a better option for those who don’t plan on staying in the home very long.
Paying cash is better if you plan a long-term occupancy and don’t want to sell or move anytime soon. The savings you realize over the long term by not paying interest far outweigh any short-term savings you might get by paying in cash but selling or moving a few years afterward.
Paying cash is a long game in terms of saving money. Those who anticipate job moves, increased family size, or similar scenarios may do better to consider a mortgage instead.
------------------------------
RELATED VIDEOS:
Home Equity Can Secure Your Second Mortgage
Consider the Advantages of Discount Points
FHA Limits are Calculated and Updated Annually
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