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Can someone explain the costs of purchasing cash vs financed ?

  • February 01 2010 - Meridian
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Answers (3)

And - just to note that there are also "regional" customs - on the west side of the Treasure Valley, as well as in the eastern Oregon area, it is customary for the buyer to pay for their appraisal, unless the seller has agreed to pay the buyer's closing costs and pre-paids items.
  • March 20 2010
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I appreciate Heaths response however things are much much different here in Idaho than in California.

Since a cash offer is easiest to explain, I will start there. Typically, the buyer pays half the escrow fee, the HOA Transfer fee (if any), recording fees (of the deed into their name at the county) and additional title fees they elect to get.  Appraisals and additional title insurance, home inspections and home warranties are at the discretion of the buyer.

If the buyer obtains bank financing to acquire the home, there are additional fees associated with the loan acquisition but also to cover the additional risk incurred to the lender which they will pass along to you.  For example, the bank will require an appraisal (in Idaho we typically have the seller pay this out of state banks are used the buyer paying this fee).  The bank will also require additional title insurance be purchased to insure them and these costs are typically passed to the buyer.  You have tax service and flood certification fees on loans which don't apply on cash transactions.  Your bank may require certain inspection and code compliance issues be resolved prior to closing (lead based paint, etc.)  Also, you may to establish an impound account for taxes and hazard insurance and even prepay some of these fees at closings too.

Depending on your down payment and the type of loan you get, would depend on what is and is not required.  Some loans mandate certain fees be paid by the seller and some the buyer.  Some sellers even pass along the additional costs of some loan programs on to the end buyer.  For example, in a brand new home, VA or FHA requires additional things the seller to do so many builders will say you need to add an additional $500 or $750 to your offer to offset their requirements. 

If you are paying cash, your agent should be able to figure out the savings to the seller and at negotiate discounts accordingly!  Also, you can close in days instead of 4-6 weeks with a cash offer.  Since you don't have to worry about the appraisal issues, etc., with a cash offer, you should be able to negotiate much stronger with Cash since it is a sure thing!

Chuckie, I hope that helps and best of luck!

Jim

 
  • February 01 2010
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When purchasing a property you will have certain closing costs that are added on top of the purchase price. There are recurring costs such as insurance and taxes and there are non-recurring costs such as title and escrow fees and lender fees (if financing). I'll break it down using an example of purchasing a bank owned property.

Paying with financing:

You can typically expect the bank/seller to pay title and escrow fees since commonly they will be choosing the title company.

You will usually get the bank/seller to pay for transfer taxes and HOA transfer fees. I like to also have the bank buy my clients a 1 year home warranty too.

With a financed transaction there will be certain mortgage/lender fees that you will be responsible for. This is the cost of obtaining financing.

A good way to lessen the burden of these fees is to have the bank/seller give you a sales concession back to cover these fees. Banks are open to doing this and I have it happen all of the time for my buyers.

Paying in Cash:

There are still the same recurring and non-recurring costs such as title/escrow, taxes and insurance.

Banks will still pay for both title and escrow but in some cases they choose go with what is "customary" in your area. This usually means that they want to split the title and escrow fees with you.

The will still pay for 100% of transfer taxes, HOA transfer fees and will still potentially pay for a home warranty.

The biggest difference is that you don't have any lender fees to pay since you are not obtaining financing.

Every situation is different so you need to clearly examine the advantages and disadvantages of both options. Whichever option you make for financing is dependent on your personal goals for the property. The best decision you are making is buying real estate because I will always believe it to be the best investment anyone can possibly make.

  • February 01 2010
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