In a competitive market, people who buy in cash control all the cards when purchasing a home. However, it may not always be so easy coming up with the full asking price. This is why buyers buy in cash now and then get a mortgage later. It’s complicated, but it works and here’s what you should consider.
Why cash is still paramount in a competitive real estate market
Buyers sell off all their assets so they can amass enough money to purchase the home in full and then they will put in an offer, stating they have cash up front. For a seller, an all-cash offer is much more appealing than those from buyers who need to finance the home. Buying in cash means there are fewer contingencies. This means, the sale of the home is contingent on the buyer being approved for that mortgage, which isn’t always a guarantee. Plus the sale is also contingent on a home inspection as well as an appraisal. Let’s not
A different buying strategy: cash first, mortgage after
Buyers are buying in cash first and then getting a mortgage later to get around these contingencies. They’ll still finance their homes with the mortgage, but they’ll put off that process until the sale has been finalized. With enough planning, it is possible for a buyer to offer a 24-hour closing. There are some negatives to this tactic, though. You’re using any marketable securities as the collateral, which means that both the buyer and lender have to agree that the collateral is worth a specific amount, which is subject to change without any notice.
What to keep in mind before you liquidate any assets
This purchasing strategy isn’t going to be right for everyone. You have to use the same thought process that you would use for any other purchase. When you make decisions with facts and not based on emotion, you’ll be able to think about it clearly. Instead of liquidating your assets and putting yourself under a lot of pressure to buy a home, you might want to change the timeline of your goal to purchase a home. It’s always wise to do your research first and figure out how much money you need and whether you have the assets to cover it. That is if you decide that the cash first, mortgage later is something you want to do.
How to buy in cash first and receive a mortgage later
Some buyers will take money out of their savings for retirement. Other people will liquidate their other investment accounts and other assets like property or even just use cash savings. Buyers who buy in cash may also turn to relatives to help them get enough money to cover the total purchase price of the house. When you do have enough money on hand, you can buy the home. Then you can get a mortgage, which will be used to repay your relatives and refill any account that you withdrew from.
Keep in mind, you have to be cautious when you withdraw from a retirement account like a 401(k) or even an IRA account.Usually, when you withdraw on these before you are retirement age will come at a price. If that is where you want to pull money from, you’ll want to consider these fees into the mortgage amount.