Cash is king, they say, but does that old adage hold true when it comes to buying a house. Yes, it does. But then again in some ways it doesn’t. Paying cash for a house can provide several advantages for buyers in some markets. It gives you leverage with motivated sellers and in markets where inventory is low and competition keen (which is the case in most markets today). Still, there are some downsides to paying cash that you need to be aware of. Read on, then, to find out what you need to know about paying cash for a house in New Jersey.
Pros of Paying Cash for a House
There are several undeniable pros to paying cash for a house in New Jersey, such as . . .
MORE ATTRACTIVE BUYER
“A seller who knows that you don’t plan to apply for a mortgage is likely to take you more seriously. The mortgage process can be time-consuming, and there’s always the possibility that an applicant will be turned down, the deal will fall through, and the seller will have to start all over again.”
POTENTIAL FOR A BETTER DEAL
Buying a house with cash gives you much more negotiating leverage and puts you in a better bargaining position. Sellers know the money is there, and they won’t have to wait for you to financing.
NO MORTGAGE HASSLE
Lenders have tightened their standards and criteria considerably since the housing bubble crash. If you pay cash, you won’t have to endure the lengthy process and jump through all the hoops.
NO WORRY ABOUT MAKING MORTGAGE PAYMENTS
“Mortgagesvrepresent the largest single bill that most people have to pay each month, as well as the biggest burden if their income falls off due to a job loss or some other misfortune.” Paying cash for a house, though, means that you’ll never lose sleep worrying about how to make the mortgage payment.
Similarly, you’ll have peace of mind in your retirement years because there will be no mortgage payment to make when your income is fixed and probably reduced. “[P]aying cash for your home in the first place can be a smart move. That’s especially true as you approach retirement. Though considerably more Americans of retirement age carry housing debt than they did 20 years ago . . . many financial planners and retirees see at least a psychological benefit in retiring free of debt.”
Cons of Paying Cash for a House
On the other hand, there are some downsides to paying cash for a house in New Jersey. The biggest of these are…
MOST EGGS IN ONE BASKET
“You’ll be tying up a lot of money in one asset class. If the cash required to buy a home outright represents most of your savings, then you’ll be bucking one of the hallowed rules of personal finance: diversification.” You won’t have money, then, to invest in, say, stocks, which have historically outperformed real estate.
LOSS OF POTENTIAL INVESTMENT RETURNS
Typically, when you purchase an asset with borrowed money, the potential for return on the investment is greater, assuming, of course, that the asset goes up in value over time. But when you pay cash, the potential for a return on the investment can be much less.
Financial experts explain this way. “[S]suppose you bought a $300,000 home that has since risen in value by $100,000and is now worth $400,000. If you had paid cash for the home, then your return would be 33% (a $100,000 gain on your $300,000). However, if you had put down 20% and borrowed the remaining 80%, then your return would be 166% (a $100,000 gain on your $60,000 down payment). This oversimplified example ignores mortgage interest, tax deductions, and other factors, but that’s the general principle.”
LOSS OF LIQUIDITY
For many homebuyers, paying cash for a house means that they have most of their funds tied up in the house. And that also means that those funds are then pretty much inaccessible, on short notice anyway.
LOSS OF PROTECTION FROM CREDITORS
Paying cash for a house in New Jersey instead of taking out a mortgage loan carries with it some loss of protection from creditors.
“In some instances, having a mortgage can protect you from certain creditors. Most states grant consumers a certain level of protection from creditors regarding their homes. Some states, such as Florida, completely exempt the house from the reach of certain creditors. Other states set limits ranging from as little as $5,000 to up to $550,000.That means, regardless of the value of the house, creditors cannot force its sale to satisfy their claims.”
Making the Right Decision
Paying cash for a house, then, has both advantages and disadvantages. The trick to knowing which route to take lies in figuring out which option gives you more bang for your purchasing buck and which one promises a greater return on the investment.
Your best bet is to talk to a New Jersey agent because local market conditions will also inform your decision. If paying cash for a house in New Jersey is an option you want to explore, contact us today at 855-966-DEAL.