Buying a Property With Cash – What Does it Mean
Buying a new property is a major financial commitment. For most people, buying a home outright is out of the question, and they are dependent upon other sources of funding such as a mortgage or the proceeds from the sale of their existing property. However, if you are in a position to be able to pay for your property yourself without borrowing any money from anyone else, there are numerous advantages to doing so.
Buying a property with cash isn’t a viable option for everyone. But for those who are able to consider it, there are plenty of compelling reasons to do so. Let’s take a look at what it means to be a cash buyer and what the benefits are.
Table of Contents
What Is a Cash Buyer?
A cash buyer is exactly what it sounds like, someone who is interested in buying a property and wants to pay cash for it. If you’re picturing someone hauling a couple of duffel bags filled with hard currency onto the table to pay for their home, we’re sorry to burst your bubble but that’s not quite how it works. When we refer to cash buyers of property, we are talking about buyers who have direct access to the funds they need to make the purchase. Those funds are most likely to be in a bank account; not many people have enough cold hard cash to buy a house unless it comes from a dubious source.
By contrast, the majority of people buying a house will be relying on the assistance of a mortgage lender. Cash buyers have enough funds on hand to be able to purchase their property outright, and so don’t need to worry about taking out a mortgage. People who are selling one property to fund the purchase of another are considered to be cash buyers if the sale proceeds are enough to cover the cost of the ongoing purchase without them needing to take out a mortgage.
What Does ‘Cash Buyers Only’ Mean?
Cash Buyer Only – Many sellers perceive a significant advantage to themselves when they stipulate that they are only interested in cash buyers. According to research conducted by the HomeOwners Alliance in the UK, roughly a third of all property sales that collapse is down to the buyer being unable to raise the necessary funds. By restricting the pool of potential buyers to those that have the means to pay for the property without relying on any outside lender, sellers can reduce the chances of a sale falling through at the last minute.
If a buyer isn’t relying upon a mortgage to help them afford their property purchase, statistically speaking, they are most likely to be relying on the proceeds from selling their existing property. Unfortunately, until they have actually sold their own property and have the funds in their bank account, they can’t be 100% certain that they will be able to complete their purchase. On the other hand, a first-time cash buyer or an investor with cash is not going to be relying on any other people or deals to fund their purchase – they are able to do so under their own steam.
What Is A Cash Sale When Buying A House?
Anyone who has been through the process of looking for a house to buy before will know that when you stumble upon the ideal property, it is a truly magical moment. Many people think that they know what their dream property looks like but then discover something that goes far beyond their wildest dreams. When you see the perfect home for you and your family, you just know it. Unfortunately, up until the moment that the sale is completed and the home is in your name, there are always things that can go wrong.
From the perspective of a buyer, a cash sale can provide additional security on a property purchase. Because the buyer in a cash sale is not dependent upon a mortgage lender or anyone else, they don’t have to concern themselves with putting financial arrangements in place. People’s circumstances can change drastically over the course of just a few days or even a single night. Making your mortgage repayments might seem easy when you first commit to them, but that can change rapidly and without warning. A cash sale means that the buyer doesn’t have to concern themselves with these ongoing costs, once the sale has gone through, it’s done and dusted.
Buying a house with cash means that the property is yours from the moment you make the purchase. If you need to take out a mortgage to purchase a property, until you have paid it off, there is always the looming possibility that you could suffer some kind of financial catastrophe and face forfeiting on your mortgage. For cash buyers, this isn’t a concern. If they do suffer financial calamity, they will already own their property outright.
What Does It Mean To Buy A House In Cash?
Buying a house with cash means that you are purchasing the property using funds that you already have. It’s unlikely that you will literally pay for a new home by handing over bags of banknotes to the seller, but most people who purchase a new house are relying on a bank or other lender to pony up some of the cash. Buying a house in cash means buying it without relying on any other lenders or other sources of financing.
There are numerous advantages to buying a house in cash if you have the necessary resources to do so. For one thing, you will remove a considerable amount of stress and uncertainty from the situation. The property buying process can often be stressful and is sometimes difficult to navigate if you haven’t done it before. Paying for a property with cash means that once the sale is done, it’s done. Contrast this with someone who takes out a mortgage to purchase a home and has to ensure they keep up with the ongoing repayments.
A buyer who is able to buy a house with cash is always going to be more attractive to the seller. Even when the buyer has an excellent financial history and credit score, if they are relying on a mortgage to be able to purchase the property, that represents another potential point of failure for the whole deal. Selling a home to a cash buyer is faster, safer, and way more reliable for the seller. As a result, cash buyers can often negotiate better offers than their counterparts who are relying on mortgages and other sources of financing to pay for the property.
Cash Buyer No Chain How Long To Complete?
The most significant advantage of being a cash buyer is that you are able to pay for your new home on your own terms without relying on anyone else. For buyers who are dependent upon a mortgage to pay for their home, there is always the possibility that something will go wrong down the chain and throw the whole sale into jeopardy. For cash buyers, there is no lender dragging their feels and, therefore, the risk of the sale collapsing is considerably lower.
Removing other parties from the equation also means that cash purchases of property tend to proceed much more quickly than usual. For both the buyer and the seller, a quick and painless transaction is always going to be a more attractive option than a long, drawn-out process. When a buyer needs to secure a mortgage prior to making a purchase, it usually takes around a month to hear back after they submit their initial application.
Mortgage lenders will often need to conduct their own surveys of a property before they will authorise a loan. Not only does this slow down the whole process, but it can also throw a spanner in the works at the last minute. On the other hand, a cash buyer is good to go and doesn’t have any of these uncertainties to worry about.
How Long Does It Take To Buy A House With Cash?
Buying a house with cash is always going to be cheaper than buying a house using either a mortgage or the proceeds of another sale. If the buyer already has the cash they need on hand, then buying a new property should only take as long as it takes to transfer the money and sign/exchange the legal contracts.
Pros and Cons of Buying a House With Cash
It can be both costly and frustrating when a property sale falls through. Research suggests that around one-quarter of home sales fall through before completion. Whether you’re selling or buying a new property, one of the main advantages of cash buyers is that there’s a lower risk of the purchase falling through. Some other pros and cons of cash buyers that are worth taking note of include:
Advantages Of Buying property on Cash.
Eliminate Risk of Mortgage Issues (Pros)
Just under 20% of failed house sales occur because the potential buyer is unable to get approved for a mortgage. Even when the buyer has an agreement in principle, there is still always the chance that the lender might decide not to go ahead with providing the loan. In this case, the seller will need to begin the stressful process all over again and look for a new buyer, and the buyer may need to reapply for another mortgage on a different property that they are more likely to be eligible for. On the other hand, cash buyers don’t need to arrange a mortgage.
No House Chain (Pros)
Another key reason for unsuccessful property sales is when somebody in the chain changes their mind. This could be down to several reasons such as finding another property that they prefer or changes to their situation that affect the sale. On the other hand, selling a property to a cash buyer prevents the forming of a chain beyond the buyer since they don’t need to wait until somebody has bought their property before they can buy another. Fewer people in the chain typically leads to transactions running more smoothly.
What Does It Mean to Buy a House With Cash for Security (Pros)
For buyers, one of the most attractive reasons to consider purchasing a property with cash is that it is automatically more secure. When you make a property purchase with cash, you will own the property outright and there is no need to worry about making future mortgage payments in the future or the risk of having the home repossessed if your financial circumstances change.
Faster Process (Pros)
A faster sales process is a key benefit of cash sales for both buyers and sellers. Cash sales release the funds to the seller much faster compared to sales where the buyer gets a mortgage, and the deal could be done in a matter of weeks, compared to months where there is a mortgage involved. Not only is this beneficial to buyers who will own a house much sooner, but it’s also great news for sellers who need to access the funds quickly or want to move as soon as possible.
Disadvantages of Buying property on Cash
Cash Sales Can Still Fall Through (Cons)
If you’re wondering ‘can you buy property with cash’ and it still fall through, the answer is yes. While no mortgage required and no chain significantly reduces this risk, there are still some factors that could lead to the sale falling through, for example, if the buyer changes their mind. Issues found during a survey, or the buyer simply finding another property that they prefer more, could interrupt the process and cause the sale to fall through.
Cash Offers are Often Less (Cons)
While the chance to get a property at a cheaper price might be an advantage to buyers, for sellers, this comes as a disadvantage of accepting cash buyers. The price that a cash buyer is willing to pay might be much lower than the asking price since many cash buyers are investors or companies that want to get the best deal. This might not always be a problem if you’re looking for a quick sale and don’t mind reducing the price, but if you want to get the best sale possible a cash buyer might not be the best option.
Potential Problems With the Property (Cons)
For buyers, it’s worth being cautious if a property is listed as ‘cash buyers only’ because this could mean that the seller suspects that the property is unmortgageable. In some cases, of course, requesting cash buyers might be a move by sellers who need to release the funds quickly so that they can relocate or avoid having their home repossessed. However, it is often used as a strategy to avoid a home survey that’s required by mortgage lenders, so it’s important to still do your due diligence and have the property surveyed before parting with your cash.
Loss of Liquidity (Cons)
Finally, cash buyers are tying up a large amount of their money in the home that they are purchasing. While buying a property is usually a sound investment and a good financial move to make, it’s important to ensure that you will not need to access that cash for any other reason once you’ve made the purchase.
Summary
Buying a home is a big step for anyone, no matter what stage of your life you are at. For people who haven’t been through the process before, it can be difficult to navigate, not to mention expensive. But for people who are in a position to pay for their new home outright using cash without having to rely on a mortgage lender or the proceeds of another property sale, things are a lot simpler. If you have the necessary funds to afford your dream property, Greater London Properties can help you to find and buy the perfect home for you and your family. Contact GLP today to discuss your current situation and how we can facilitate your next property purchase.
