Cash Customers Hold A Benefit In Depressed Housing Market

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Buying homes with cash is a growing trend. Cash offers often beat out others based on mortgages, even if they’re for less. Careful preparing, however, can put a borrower in a better position when squaring off against cash. Article source – Mortgages face tough competition from home buyers paying cash by MoneyBlogNewz.

Cash is the best

The National Association of Realtors reported an all time high in the number of deals in February in home sales done with cash. Home customers financing with a home loan isn’t nearly as good as a cash buyer. The real estate market seems to have more cash customers because many would rather have a home as an investment than stock. People are also pulling their money out of the market and investing in rentals that net a greater long-term return than stocks. Cash was paid by home customers purchasing as an investment last year at 59 percent. Cash has an advantage over a mortgage since the seller knows a closing not probably going to be derailed by contingencies. When choosing between a buyer that needs financing and a lower cash offer, most are willing to take the cash. When the bank is selling, it always prefers cash. Getting a home off of the books is important to banks. This is why the safe choice of cash is chosen.

Competing with cash

Many foreclosures are being sold. About 25 percent were foreclosures in 2010. According to Fannie Mae, short sales increased also. This number increase 128 percent last year. Any seller with equity doesn’t 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. With a pre-approved mortgage, financing buyers are competitive again. Larger down payments are also preferable. This makes for better competition as well. Listen to what the seller wants and be willing to do whatever it takes. Treat them with respect and have a detailed contract ready that makes the deal clear. When the time comes, act easily. Don’t give up hope as a financing buyer. It may not work for someone paying cash. Those deals also don’t always work.

Which product to use

Additionally to getting a better deal, paying cash to purchase a home has several advantages. Sometimes the accessible returns on investments are lower than home loan 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. For a home loan with 20 percent down, if the value goes down 10 percent, the home buyer loses 50 percent of the down payment. There are advantages home loans have though. There is not any money for other investments when you purchase a home with cash. There is also leverage here. If the value of the home goes up, the home loan holder gains a higher percentage than the cash buyer. The cost of the loan goes down when considering home loan interest is tax deductible.

Articles cited

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/

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