home1A place in which you’re interested is for sale. You go check it out, it’s great and you gotta have it, but you’re not alone; if it’s something worth having; it’s likely that there are a few others who feel the same. In this case, how do you make your offer? You could go traditional, seek a financing option and get a mortgage. That’s standard, right? Perhaps, but when competition is stiff, cash is king.


This scenario is not uncommon. In fact, a recent story in the New York Times highlights this very situation in a story about real estate in New York City, and the growing trend for homebuyers to dole out cash to one-up the competition. In this story, three offers were made, the winner was one of two who offered cash, the mortgage deal wasn’t not considered. Does this mean cash is always better? I’m not sure, but there are certainly benefits.


All parties–buyers and sellers–reap benefits from cash purchases. In fact, many sellers prefer cash because it offers more of a guarantee than financing. Mortgages take longer and if the buyer isn’t approved, the sell of the home could be halted or cancelled altogether. As a result, cash purchases are highly valued and sometimes close faster.


For the buyer, the pros include less fees, including such on loan interest and mortgage origination. Furthermore, there are opportunities to receive a discount from the asking price, because of the attractiveness of having cash on hand for the home. So, both at present and in the long run, cash costs less than a mortgage.


But mortgages aren’t bad. Cash payments might be subject to tax, whereas mortgage interest is deductible. Also, if the home is older and requires significant renovations, obtaining a home equity mortgage may be difficult for buyers whose credit changes. Also, not having a mortgage may limit protections offered through homestead exemption.
Both have pros and cons, so it may be difficult to choose. But, you don’t have to. A number of buyers are capitalizing on the benefits of paying cash upfront then securing a mortgage after, or delayed-financing. Doing so provides a win-win situation for the buyer, who can then secure the home, but also recoup some of the funds soon after, through programs offered by Fannie Mae, which are tailored for these kinds of purchases and offer near immediate returns.