Blog

Cash is King, but is it always necessary?

Cash is King, but is it always necessary?

In 2010 more than 50% of all real estate transactions were purchased with cash. This statistic has continued throughout the first three quarters of 2011. There are many reasons why a homeowner would decide to purchase with cash. With foreclosures at an all time high, cash transactions make sense because most foreclosed homes that have been abandoned are also in need of some repair. As a matter of fact, certain banks may require that a foreclosed home must be purchased with cash. This is because a distressed property will typically not pass a residential appraisal and if the appraisal is not sufficient then it is impossible to obtain financing on that property through a bank or mortgage lender. In addition, cash transactions can be beneficial if you are in a bidding war for a property or are trying to negotiate a lower price. Lastly, a seller may be inclined to go with a cash offer to avoid any financing hiccups or to speed up the time frame for closing.

These are all valid reasons why Cash is King in today’s real estate market but, is it always necessary to make a cash purchase? Currently, interest rates are at an all time low which means that borrowing money will cost you very little. The benefits of using cash are understandable. However, some homeowners decide to purchase with cash based on misconceptions like “it is impossible to get a loan – or banks just do not want to lend?”. This is simply not the case. Of course, the rules of mortgage lending have become more stringent since the real estate collapse several years ago. But, most of the policy changes were geared towards those who could not show or prove their income. These stated income loans, also known as liar loans because individuals had no income verification, have completely disappeared from the lending world and I think everyone would agree that this was totally necessary for our overall real estate market.

That being said, those who can prove income and also have a decent credit score should be able to qualify for a mortgage with little or no problems. As a matter of fact, FHA mortgages allow as little as 3.5% down with a 620 credit score. The 3.5% down payment plus closing costs can even come in the form of a gift from a family member.

Some of you may have purchased with cash and now realize that you may have been able to qualify for a traditional mortgage or perhaps you have cleaned up your credit since buying with cash or your income has increased. If so, why not take some of that cash back? Why not free up some liquidity and pull out some cash from your free and clear property? It is possible to immediately refinance and take cash out of your property without having to wait 6-12 months like in the past. Perhaps you purchased a distressed foreclosure and did some repairs. Now would be an ideal time to pull some cash out since the repairs were corrected and the home would pass a residential appraisal. Borrowing money has never been cheaper. This really is a fantastic time to take advantage of it. If you or someone you know is getting ready to purchase or refinance their home and has questions in regards to the mortgage process, please feel free to call Dan Longman, President of Priority Lending Corp, at 954-438-3776 ext.11 or email me at prioritydan@bellsouth.net. Visit us online at www.prioritylendingcorp.com

0