Can you buy a house with cash and then get a mortgage?

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In competitive markets, money is king. But come up with the full purchase price of a house for sale in Baltimore, Maryland, or anywhere else is not easy to do. That’s why some buyers look to a one-size-fits-all solution to compete better when multiple deals are on the table: pay cash now, then get a mortgage later. Does this sound complicated to you? He is. Here’s how it works and what you should consider.

1. Why cash is still king in competitive real estate markets

Here’s the strategy: Buyers liquidate their assets, raise enough money to buy the house, then make an offer as a cash buyer. For sellers, cash offers are more attractive than those for buyers who need to finance the purchase. Cash transactions mean fewer contingencies – primarily, the sale of the home depends on the buyer’s obtaining the mortgage, and there is no guarantee that this will happen. For example, the sale could fail if something goes wrong during the subscription process. The sale is also subject to a home inspection and assessing whether the buyer is financing the purchase, and again, a number of issues could arise that could give your lender (and yourself) pause. Additionally, all-cash transactions tend to close faster and with fewer overall complications than a sale that relies on finance.

2. A new purchasing strategy: cash first, mortgage later

Buyers use the cash strategy first, then the mortgage later, to get around these eventualities. They still have finance their house with a mortgage, but they delay this process until the sale is final. “With good advance planning, a buyer could potentially come up with a 24-hour close,” says Dennis Crowley, director of Vitruvius Capital Consultants. Prior to opening his own business, Crowley was a private banker and helped buyers use this strategy to buy homes.

There are downsides to this tactic, however. “You are using marketable securities as collateral,” Crowley cautions. “This means that the buyer and the lender have agreed that the collateral is worth a certain amount, and that amount is subject to change without notice.”

3. What to consider before liquidating your assets

This buying strategy is not for everyone. “Use the same wisdom you would apply to any other purchase,” advises Crowley. “Make decisions with facts, not emotions, and understand your options. »Instead of liquidating your assets and putting a lot of pressure on yourself to buy a home, consider a new one. chronology of your home ownership goal – maybe set a buying goal in five years instead. By then, you will have saved more money and may not need to liquidate existing investments. Second, the the real estate market could change meanwhile – making such extreme measures unnecessary.

But if you do your research and figure out cash flow first, then mortgage later is something you want to do, you need to know how it actually works. After all, few buyers try the strategy just because they don’t know it’s an option.

4. How to Buy Cash First and Get Your Mortgage Later

Some buyers are withdrawing money from their retirement savings. Others liquidate other investment accounts and various assets like other property or use savings in cash. Buyers also look to (generous) relatives to help them raise the amount needed to cover the purchase price. Once you have enough money you buy the house (woohoo!). Then you get a mortgage, using that loan amount to top up the accounts you’ve run out of and pay off anyone who helped you put together the money you needed to buy.

Of course you must be careful when tapping into your retirement savings, like 401 (k) and IRA accounts – it’s not always a wise move. You will be penalized for withdrawing funds before retirement age, so include these fees in the total cost of your mortgage if you want to pay off those accounts in full. And an important note: Crowley stresses that trying to use your existing assets in this way is not for people who want to borrow money they don’t have. The cash first, mortgage later option is for people who want to use the capital they already have in the most efficient way, he says.

5. More factors to consider

Remember to assess your situation (and your assets) to determine if buying this way is even an option. “A buyer with about 150% of his proposed purchase price in marketable securities puts those options on the line,” Crowley explains. “Failing that, a buyer who owns at least 200% of a deposit required might consider them.

An understanding of marketable securities is a prerequisite for this buying strategy. Crowley also recommends finding the right lender. Most mass market lenders will not be able to support the level of complexity required to smooth the process from start to finish. “Most of the big brokerage firms offer these options. Some small businesses do it too, ”Crowley says. “Even some independent financial planners have access to such channels. “

The bottom line? Liquidating your assets to buy a house with cash and delaying financing by taking out a mortgage after the purchase is a great strategy, but not one for everyone. it can help keep your offer competitive when you’re trying to buy a home, but you shouldn’t just liquidate all of your assets to become a cash buyer. Use the money you already have as leverage, and don’t try this strategy just because you don’t have enough money to put money on a house or buy a house.

Have you bought a house for cash and then taken out a mortgage? Tell us about your experience in the comments!


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