AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

Hello

I live in San Antonio TX where housing pricing are fairly low.  If I have cash to purchase a house, would that help me in the negotiation process?  If a seller knows that I'm going to pay cash and we don't have to wait on a loan approval, would they be more willing to shave a nice amount off the asking price?  Are there any disadvantages (other than financial) to buying a house for cash?

I have read lots of articles about how financially, a mortage is better than cash because I can use the cash to invest, tax savings, etc..  But I like the feeling of being debt free. But are there any reasons (besides financial) that I should shy away from paying cash for a house? Like the closing falling through or something like that?

BTW, I'm retired on a pension and I have a decent savings.  If I buy a house for cash, I'd be using the savings.  If I got a mortgage, I'd be taking money from that savings to pay the mortgage - if that make any difference.

Thanks

Sheila 

 1. Yes, it can help you negotiate when the seller wants to sell more quickly.  The seller does not need to wait on the buyer's mortgage process.  On the other hand, if the home has been on the market for very long the seller may not care if it's a cash deal or mortgage deal.  Your position of strength is in the fact you are the potential buyer and the seller wants to sell.

2. SB's article is helpful but there is no simple answer: http://assetbuilder.com/blogs/scott_burns/archive/2005/05/03/Pay-Off-Mortgage-or-Invest_2C00_-Reexamined.aspx

3. If you have never owned a home, there are "hidden" costs: taxes, repairs, landscape maintenance, and remodeling.

4. If your savings are in the bank, earning minimal interest, you may be financially better off to to spend the cash on a modest home.

5. Suggestion:  use a realtor, pay an engineer to check the property for major flaws, and use a lawyer. 

6. Remember: location, location, location.
 

 Shiela,

    Paying cash makes lots of sense, particularly if you are already retired and would have to make mortgage payments from your savings.

    Having the capacity to pay cash can also help in getting a good buy. But it depends on the circumstances of the seller. If the seller already owns another house, has a job in another city or state, or has some other pressing reason to sell, the odds are that you can negotiate the selling price down. It helps, of course, if the seller has substantial equity in their house. If the seller has little or no equity--- and you may encounter people who don't--- they may not be capable of selling at a lower price because they don't have that could be required at closing.

Scott