There’s a new buying strategy brewing: Cash first, mortgage later. Here’s how it works: Rather than having to finance a purchase, buyers liquidate their assets (including taking money out of their retirement savings, investment accounts and assets such as other property); amass enough cash to purchase a home outright; and then make an all-cash offer. This can help make your offer more attractive when trying to purchase a home because it typically means fewer contingencies for the seller — such as the chance of the sale falling through if something goes awry during the mortgage-approval or home-inspection processes. According to Trulia.com, here are some factors to consider before you decide to take this route.
• Rather than liquidating your assets and placing a lot of pressure on yourself to purchase a home, consider a new timeline for your homeownership goal — perhaps set a goal to buy in five years instead. By then, you’ll have saved up more cash and may not need to liquidate existing investments.
• Once you’ve done your research and determine that cash first, mortgage later is something you want to do, be sure you know how it actually works. Many buyers aren’t trying the strategy simply because they aren’t aware that it’s an option.
• Be careful when dipping into retirement savings, such as 401(k) and IRA accounts. You’ll be penalized for withdrawing funds before retirement age, so include those fees in the total cost of your mortgage if you want to fully pay back those accounts.
• Remember to evaluate your situation (and your assets) to determine whether buying this way is even an option. Understanding of marketable securities and finding the right lender are prerequisites for this strategy. Many mass-market lenders won’t be able to support the complexities required to help with the process from beginning to end.
