How To Buy A Home With Cash

To buy a home with cash may seem like a crazy idea. But as more people struggle to trust banks and lenders, it’s catching the attention of more debt-weary generations of people.

In the following article, we’ll be talking about the ins and outs of buying a home without a mortgage. This includes why and how to do do it in the first place. Let’s begin!

Why Buy a Home with Cash in the First Place?

The idea of selling your house for cash is picking up steam. That is at least if this page and the rise of nationwide cash-offer marketplaces are indicative of the trend.

But what about on the buyer end? How could it possibly benefit someone looking to buy a home to tie up their liquidity in such a manner?

Well, there are a lot of good reasons to do this. Those include:

  • Not having a large monthly living expense
  • Having full equity in an insured financial instrument
  • Agility in what you choose to do with the property
  • The ability to turn it into a stream of income through rentals
  • The feel-good reality of not owing anyone anything, at least as living expenses are concerned
  • Not throwing away money on rent

The idea of full homeownership is great. But it can be a little more challenging turning it into reality. However, you can do it if you follow these eight steps.

1. Set the Right Expectations

Expectations are everything when it comes to successfully buying a house with cash. Make sure yours aren’t overly lofty before you begin searching the market. Ask questions such as:

How much home is affordable? If you’re making $60,000 per year, and don’t have a small fortune in savings, a seven-figure home isn’t realistic. Figure out what’s realistic with calculators like the ones here at All Things Finance.

How much home is preferred? You may not even want a large or expensive home. Determine what you like to do, what your possessions are, and how much space you’ll need for it before pulling the trigger.

What’s the ultimate end-goal? Do you want a better home than you can afford? Don’t let your inability to afford it now keep you from working toward it with the purchase of a smaller home.

Visualize your short- and long-term goals. Then, move onto the next step.

2. Plan for Upkeep Costs

Paying cash for a house owner’s asking price is only part of it. You also have to do the math on any needed maintenance and repairs for the full length of time you plan to be the owner. Consider that before you get ready to make an offer.

3. Start Saving

It’s impossible to buy houses with cash (or through mortgages, for that matter) without first making a budget. And the chances are likely you did that during the setting expectations phase.

But the budget is not enough. As Mike Tyson once said, “Everyone has a plan until they get punched in the face.” Well, life can punch your finances in the face from unexpected directions.

And when that happens, it becomes easier to lose sight of your budget. So resolve as much as humanly possible to stick with your budget every day until you have the necessary liquidity to make a serious offer.

4. Empty Your Virtual Couch Cushions

Your income may not be the only resource for buying a house with cash. Look to your savings account, retirement plan, stocks, mutual funds, and other investments.

Plan on taking a tax hit in the process. If you’re emptying out a retirement account, there will be the capital gains, the early withdrawal penalty, and any additional income tax.

5. Show Proof

For any seller to take your offer seriously, you’re going to need to show them proof-of-funds. That doesn’t mean bringing stacks of green to their door. Your bank statement should do the trick.

6. Consider FSBO

Another move to make your decision to pay cash for a house easier: approach a for-sale-by-owner instead of a realtor-listed home. Often, FSBOs will price their homes lower because they don’t have to worry about the agent commission.

Going this route does come with its own challenges and considerations. Make sure you’re aware of what they offer before pursuing this course.

7. Buy Small

A small home may not be your ideal for what it means to become a homeowner. But they have a lot of advantages that should attract your attention regardless of what you can actually afford.

For starters, they won’t tie up all your liquidity. Secondly, fewer things can go wrong with a smaller home than a bigger home, thus reducing the cost of upkeep and repairs.

Thirdly, you can more easily flip a small home because it attracts a larger number of buyers for its affordability. And perhaps best of all, you can more easily turn it into a rental property for an ongoing stream of income.

8. Upgrade Only When It Makes Sense

That smaller home you bought with cash in number seven gives you the chance to work toward a larger home if that’s your ultimate goal. Simply use the money you’re saving on a monthly mortgage payment toward the future purchase. The small home will protect your existing equity and will likely grow in value until you’re ready to sell.

Plus, delaying gratification is a common trait of successful people. Learning how to do that by putting off your larger home will lead to wiser financial decisions in other areas of life, thus accelerating your ability to make larger purchases.

Are You Ready?

The decision to buy a home with cash is not one to take lightly. If you’re starting from scratch, it’ll take some time to build up to a level of liquidity for it to even be possible. And that’s true whether purchasing a small, mid-sized, or larger home.

But with patience, planning, and execution, you can avoid the mortgage hassle altogether. And for additional tips and tricks to get more out of your finances, keep coming back to All Things Finance.

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