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WHAT ARE THE PROS AND CONS OF PAYING CASH FOR A HOUSE? DOES THIS EFFECT CLOSING?

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March 23 2011 - Nazareth
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When talking about the 30 percent who are buying all cash, it is usually an investor who is looking to rent or fix up and flip the property. Often they are buying properties that aren't mortgageable based on condition. Pros for you: faster closing. No interest payments makes the true cost MUCH lower, lower closing costs (no tax escrow , no title insurance for the bank - still get your own!) Cons: you've tied up your money, no leverage to use money for other items/investments. Talk to your accountant and attorney for advice
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March 23 2011
Hi Chickleteen

Great answers to you questions below, best to review with cpa and a Realtor. Then weigh the options and decide the best route for yourself.
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March 23 2011

I agree with previous responders.  You just need to decide what better works for you.  Consult with your tax adviser and your REALTOR.

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March 23 2011
Hi, Chickleteen - that's a great question!  Especially when the most recent reports show at 33% of home buyers are paying cash for their homes today!
The biggest pros for paying cash is that your closing timeframe is *much* faster - my Team helped a cash buyer purchase their home in Apex, NC last week and they could have closed in only 5-7 days (compared to 4-8 weeks for a buyer that requires financing).  Because of the fast closing timeframe - and because there's no uncertainty about meeting loan conditions - cash buyers can frequently negotiate a better price on the home, too.
There are 2 potentially negative considerations, too. The first, as cited below, is that you won't receive the tax benefits of writing off your mortgage interest.  That's a good topic to discuss with your CPA or tax accountant.  The second potential negative is that you won't have the 'safety net' of bank-required appraisal by a licensed appraiser.  Mortgage lenders require buyers to get - and pay for - an independent appraisal to verify that the home is worth the selling price, based upon recent sales of comparable properties.  As a cash buyer, that appraisal isn't required so - if you are in a market where prices are falling - you risk paying too much for the home.  I encourage my cash buyers in the areas my Team serves - Apex, Cary and Holly Springs, NC - to pay for an appraisal.  Far better to pay the $450 it costs here than to risk paying thousands too much for their homes.
Hope this helps and happy house hunting!
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March 23 2011
Hi Chickleteen,

I think most of us will agree if your purchasing a home for your residence cash is the better choice by far, saving you both time and money.

If it's an investment property you may want to consider both options a bit more as cash purchases tie up alot more of your resourses versus borrowing a portion to give yourself more flexiblity at a cost. 

Hope this helps.

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March 23 2011
Your closing costs are a few hundred dollars compared to several thousand you would pay if you mortgaged the property.  If you are making an offer on a bank-owned property, they are more apt to take your offer over a mortgaged offer, even if your offer is less.
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March 23 2011
pro's- no delay's from the bank, no origination fee which is typically 1%, quicker close time, Seller more likely to accept a lower price (most times), money is not really earning a great yield in a bank account, so this allows you to make your money work for you. 

Cons- Can not deduct the interest from your taxes, that's pretty much it! 

Hope this helps!! 

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March 23 2011
 
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