There is a reason the mortgage industry exists. Most home buyers don’t have enough money to cover the full cost of a new home – especially in today’s housing market when home prices are so overpriced.
But in fact, many buyers miss mortgage process this year and buy houses with cash instead. In fact, 30% of all US home purchases in 2021 were in cash, according to Redfin. This is more than in 2020, when 25.3% of home purchases were made with cash.
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Why do buyers pay in cash?
Paying a house in cash has its drawbacks, even for those who can afford it. When you buy a house with cash, you are investing a lot of money in a rather illiquid asset.
Liquidity tells you how quickly and easily you can get your money back on your investment. For example, stocks are pretty liquid. You can sell shares and get cash for them almost immediately.
On the other hand, selling a home can be a lengthy process. You need to create a listing for buyers to come see it, evaluate offers, and then wait for the property deal to close, which can take weeks or even months.
It is for this reason that so many buyers take out mortgages to buy a home, even when cash is available. But this year there was a shortage of inventory in the housing market, and the fact that a few houses hit the market has largely stopped. bidding war… By offering cash payments, buyers gain an edge over their competitors, namely those who need a mortgage to finance their home.
Sellers tend to favor cash offers over offers from buyers looking for a mortgage because there is less risk with cash. If the seller accepts the offer and the buyer’s mortgage fails, that seller may have to wait weeks to sell that property. Cash offers are more correct.
How to compete with the money supply
While cash offers may have become popular this year, you may not be able to make them. If so, then the best thing you can do is get preliminary agreement from a mortgage lender.
The pre-approval letter does not formally guarantee you a mortgage. But what is it does This is to show the seller that the lender has looked into your finances and decided that you are most likely eligible for a loan for a certain amount, as stated in this letter.
Another way to get an edge over your customers with cash? Offer to pay more. Cash buyers may not have the flexibility to make an offer above the asking price of a home. On the other hand, if you are mortgaging the bulk of your home’s value anyway, you may have the freedom to choose above the asking price. (But be careful not to overdo it, because you don’t want to pay much more for the house than it’s worth.)
While cash offers may be more common in today’s housing market, that doesn’t mean everyone pays in cash. If you need a mortgage to buy a home, don’t worry about it. Instead, do your best to gain an edge over the competition.