Making an offer: financing versus cash

There are many things to consider when you make an offer on a house. One of them is whether you should pay cash or opt for financing. There are advantages and disadvantages of both that you should think about before signing on the dotted line. Granted, not many people can afford to pay cash for a property but if you’ve sold your family home for a smaller property or inherited a large sum of money, this could very well be you.

Interest

It is true, there are no interest payments when you buy cash but when you finance a property, interest payments can be offset over time. All you need to do is pay more than the minimum amount into your home loan every month, or by putting any extra cash you have into your home loan when you can.

If you don’t use your cash reserves as collateral to secure a home loan, you are then free to invest your cash in a financial vehicle or asset class where you could get higher returns on your investment. Financing a property lets you retain the liquidity of your cash reserves, instead of tying it up in a single large asset over a long period of time.

Some may argue that when you pay cash you don’t need to worry about interest rate fluctuations. However, on the other hand, with a home loan, you can fix the interest rate for a specified amount of time. After the set period you can re-negotiate your interest rate with your bank. If you rather invest the cash, you could very well earn more interest, which can offset the interest payments – as long as your investment is solid.

Pre-approval

Buying cash does allow you to make a stronger offer that makes homebuying quicker, simpler and easier but with a verified BetterBond home loan pre-approval you can give agents and sellers the reassurance that you can afford the purchase price. This speeds up the process and also gives you a competitive advantage when house hunting.

Credit checks

Even though you don’t need to have a good credit score when you buy a home cash, regularly checking your credit score is a good habit for financial well-being. A pre-approval certificate is valid for three months so keeping an eye on and building a positive credit score can bode well for future financing requirements. Paying a home off, if you pay on time and don’t miss payments, can also help you build up a good credit score.

Paperwork

If you, like many others, don’t enjoy filling out reems of paperwork, a cash buy will give you less application forms to complete. It is important to remember that with BetterBond, you fill in a single application and BetterBond takes care of everything else – including applying to multiple banks on your behalf with one application.

Negotiation power

Buying a property cash will always give you negotiation power with the seller. If you are sitting on the fence, remember that BetterBond can do all the negotiating for you for free. Our home loan consultant will approach all the banks on your behalf – including your own – and then negotiate the best deal. Our consultants have long-standing relationships with multiple banks and an in-depth understanding of the products offered by the banks, what the banks need and how to negotiate the best interest rates on your behalf.

Remember, every buyer’s financial status and needs are unique. Getting in touch with a BetterBond consultant will help you get answers to any of the questions you may have so that you decide what’s best for you.