The upside to cash purchases
One of the most appealing advantages of buying a property for cash is the fact that no interest will be paid on a home loan, which over a typical home loan duration can amount to a significant sum. Many purchasers feel this allows for more flexibility on a monthly basis as no repayments need to be taken into account.
Further, there is no need to worry about financing being approved which can often be a stressful and time-consuming process. Your credit record will have no bearing on your ability to purchase the property and no bond registration costs will be due.
The prospect of a cash transaction can also be a more attractive option to serious sellers. Often a cash purchase can result in a smoother and faster process as the purchase relies on fewer conditions. Since a seller might see this as an advantage, the buyer may also be in a position to negotiate a better purchase price.
It is worth noting though, that buyer will be liable to pay the full purchase price into the transferring attorneys trust account in accordance with the offer to purchase, and a guarantee will be issued to this effect. This means that a purchaser must have access and means of transferring this substantial sum of money when required.
Of course, where there are benefits to be taken advantage of, there are typically potential pitfalls to be avoided, and purchasers should consider a cash buy from all perspectives before taking the leap.
Potential disadvantages to a cash purchase
If you are purchasing a property with cash, it might mean that a large portion of your savings or cash reserves will be tied up into one asset which can cause problems if an emergency arises. A property can take months to sell and register in the new owner’s name, leaving one cash strapped in the interim. Raising a mortgage bond against your property in this instance can take some time causing unwanted pressure.
While purchasing cash might work for some, it may not for others. There is a possible middle ground where a buyer is able to spread the risk by opting for a small mortgage. Not only does this approach leave you with some cash liquidity but also gives you the chance of being approved for mortgage finance with the best available interest rate.
Before a decision is made regarding purchasing cash or not, all opportunities and consequences should be discussed with an expert, such as a mortgage originator who can provide valuable insight into financing a property. Follow Snymans on Facebook for more legal information, tips and news about property.
Written by Wessel de Kock