Home buying and selling, cash or mortgage

[dmcummins]

I'm getting ready to put my house on the market, and I'll also be buying soon. I read where there are quite a lot of cash buyers now. I will be paying cash, or at least I can. But I'm not sure what the advantage is. I can see if someone needed a quick sale, but a month or two really doesn't make much difference to me. If someone buys my house, I don't care if the check comes from their bank, or their pocket, it spends the same.

I'm assuming they have been pre approved for the loan.

When I go to buy my next home, does it make a difference that I'll be paying cash? I go back and forth about borrowing a small portion just because the rates are so low. But I'll probably just pay cash because I don't want to pay the bank fees and its just easier.

The only advantage I can see is cash is quicker, but what are we talking 30-45 days.

[jwasbury]

Coming in with a cash offer can make it more attractive than an offer that has a financing contingency. From a seller's point of view, if you have multiple offers on the table, you may be inclined to take the cash offer, even if it is a somewhat lower price than an offer that has a financing contingency. Mortgage underwriting is a lot tougher today than it was 6-7 years ago...not everyone gets approved. From the sellers POV, if you accept an offer with a financing contingency, and the buyer ends up not getting the financing, you're back to square 1, and you've probably lost 30-45 days of time waiting around.

From a buyer POV, if the property you're offering on doesn't have competing offers, I see little advantage in going in with a cash offer. Just have a committment letter from the mortgage co in hand with your offer. Shows you are serious to the seller and gives them comfort that you can close the deal.

[KFC911]

I saw recently where 42% were "cash purchases" these days. Takes a LOT of the assumptions and potential "gotchas" completely out of the equation imo, and that's what the playing field is these days. No way would I borrow (if I didn't have too), because I've been firmly in the "no debt is freedom" camp for a long time, and I just wouldn't borrow "cheap money" just because it's "cheap"....YMMV.

ps: I fully realize that MAY not be the most logical decision from a purely financial perspective, but the difference between the spread is just not something that "I" care to chase at this point in my life.

[look 171]

No lending contingencies, appraisals, to keep from closing escrow. Pre-approval doesn't mean that it will appraise for the selling price.

[Jim Richards]

Originally Posted by look 171

Pre-approval doesn't mean that it will appraise for the selling price.

Yep. The house we tried buying before the one we actually ended up purchasing failed to appraise for the selling price. The difference was enough for us to walk away. If we were cash buyers, we might have felt like moving forward despite the appraisal. Who knows.

[dmcummins]

We are still getting our house ready to sell. We are boxing up some of our stuff and putting everything we don't need in storage. Also doing a little painting and cleaning up. Its still cold here and we are suppose to get some more bad weather this weekend. Hopefully we will be ready in a week or two. We are going to start out with for sale by owner, many house sell that way here. I'm out in the sticks somewhat, not many homes for sale here. If we don't get much interest in a few weeks we will go ahead and list it with a realtor.

My wife is teaching a night class one night a week, she is done in the middle of May. We are planning on moving to Florida, so our plan is to rent down there for a few months in the summer. That will give us a idea if we really want to live down there full time. And also to give us more time to pick a location.

Here is a pic from a few years ago, I had the house built in 2001. Its on 2 acres and only a few blocks from the marina's on the Mississippi River. I'm not worried about the appraisal, I'm not looking for top dollar, I can sell it for whatever it appraises for if need be. I really just don't want to fool with it.

I guess I'll have to see if I can save any money if I pay cash. I wonder if it makes a difference on a short sale? I see a few homes listed that way.

[look 171]

Jim,

In today's market, sometimes there are just no homes for sales in a particular area so it can't appraise for the selling price but all parties know well that the home in escrow is right on target. That's real gut wrenching especially when the buying party over bids and finally get their offer accepted after many rejections from previous attempts.

[dmcummins]

Originally Posted by Jim Richards

Yep. The house we tried buying before the one we actually ended up purchasing failed to appraise for the selling price. The difference was enough for us to walk away. If we were cash buyers, we might have felt like moving forward despite the appraisal. Who knows.

I assume you felt the first house was worth the money. I assume the first house sold eventually. I wonder if they ended up dropping the price after a while or if a different appraisal came up with a higher price?

If mine doesn't appraise for what I'm asking I will be surprised. But I'm selling it for what it will bring within reason. I'll keep it for a second home if I have to. But I really don't want to deal with that.

[dmcummins]

Originally Posted by look 171

Jim,

In today's market, sometimes there are just no homes for sales in a particular area so it can't appraise for the selling price but all parties know well that the home in escrow is right on target. That's real gut wrenching especially when the buying party over bids and finally get their offer accepted after many rejections from previous attempts.

Why would this matter? Isn't an appraisal suppose to tell you what's its worth?

[look 171]

It tells the bank what they think its worth so they can loan on it. Many of the appraisers are from out of the area, so a house on a hill top that over looks the city should be more money compared to a home half a mile down the hill. That number can be as much as 200k depending on the area, especially out here. I am dealing with it right now. There are no 600-700k homes on the market within 1-2 mile radius from us, but there are few that sold for 4-500K homes and a few that are over 1.2M. So the appraiser is now thrown for a loop. He did not want to appraise it for our selling price. My agent did a lot of convincing with all sorts of numbers, so it finally got done yesterday.

[Jim Richards]

We had the house I mentioned end up appraising low near the bottom of the collapse in the housing market in SoCal.

[mreid]

We sold our house in PA last February (owned it free and clear) and moved to San Antonio. After considering our options, we put 30% down and financed the rest at just over 3% and invested the rest. The new house appraised at $100k less than agreed price and we split the difference with the seller. There just weren't many homes in that price range that sold and could be used for comps. We made 17% on the invested money and free like very savvy investors (at least this year)!

[biosurfer1]

If you have the option of paying cash...you can always make a cash offer and buy the house with cash and take out a mortgage once you have closed. Best of both worlds. Attractiveness of a cash offer then flexibility of cash in the bank with the mortgage.

[dmcummins]

Thanks for the info. I have never bought a used house, we have always had new ones built. Ive sold a few in the past, and never had any trouble, but the last one was in 2001. Back then houses alway's went up in value.

And Ive only used a realtor one time, the house sold in a week, first person who walked in the door bought it.

I'll just have to see how things go, but I do worry about comparable houses for sale, there are just not many in the area. There are new ones being built for time to time, and no acreage for sale.

I can see where a cash offer would be better, but I'll just have to see how much interest I get once the sign goes up. I know I don't want to be on the hook waiting for someone to sell their home first.

[look 171]

Originally Posted by biosurfer1

If you have the option of paying cash...you can always make a cash offer and buy the house with cash and take out a mortgage once you have closed. Best of both worlds. Attractiveness of a cash offer then flexibility of cash in the bank with the mortgage.

yes, but they only give you 60-70% cash out or loan as you call it.

[look 171]

Originally Posted by dmcummins

Thanks for the info. I have never bought a used house, we have always had new ones built. Ive sold a few in the past, and never had any trouble, but the last one was in 2001. Back then houses alway's went up in value.

And Ive only used a realtor one time, the house sold in a week, first person who walked in the door bought it.

I'll just have to see how things go, but I do worry about comparable houses for sale, there are just not many in the area. There are new ones being built for time to time, and no acreage for sale.

I can see where a cash offer would be better, but I'll just have to see how much interest I get once the sign goes up. I know I don't want to be on the hook waiting for someone to sell their home first.

Yep, comps are going to make you or break you unless its a cash buyer.

[RANDY P]

Originally Posted by dmcummins

Why would this matter? Isn't an appraisal suppose to tell you what's its worth?

If a buyer has cash, it doesn't matter if you have an appraisal- the appraisal is there to keep the bank happy- appraisal and title, and escrow are requirements of the bank. You can sell you house for a bajillion dollars, or $ 50- if that's what they agree to, that's what they agree to. They are free to pay whatever they like.

Condition of house doesn't matter- if you like the deal, they like the house that's all that matters. You don't even need to use Escrow if you don't want to.

Of course you are opening yourself up to all kinds of potential issues by foregoing escrow and title but it's technically possible- you WANT escrow and title, just in case the sellers come back later with some technicality.

Always try to get cash buyers to skip appraisal- they save $$$, you save headache by NOT having some ass hole appraiser punch holes in your listed price, and you have no loss at hand since it's at the buyer's discretion. If you are the buyer- DO A HOME INSPECTION! (differnt than appraisal) Appraisal- check comps carefully, or just pay for said appraisal.

The appraisal is assurance to the bank that the buyer's house is worth what they are buying- it's the bank's money they are protecting.

rjp

[biosurfer1]

Originally Posted by look 171

yes, but they only give you 60-70% cash out or loan as you call it.

I'm not sure I see your point. He would end up with roughly the same amount of money either way...except for the savings he could possibly get with a cash offer.

[look 171]

Originally Posted by biosurfer1

I'm not sure I see your point. He would end up with roughly the same amount of money either way...except for the savings he could possibly get with a cash offer.

10-15% difference isn't much if its a 200k home, but its a lot of money is its a 900k house. If he buys the house in cash, then the bank will mostly allow Mr. Cummins to cash out or take out a loan for 60-70% of what the house is worth. He will never get to take out 100% even if he owns the house free and clear. He may not qualify for a loan even if he own the home free and clear depending on his earnings and if he's retired, then it even more difficult. There are just too many variables. Depending on the market and location, cash isn't king anymore but it makes the transaction painless for both parties.

[look 171]

Hey Randy,

I know you are in the business. Are there many homes purchased with cash at your location? Sorry for going off topic.