This is the second time this month I have been asked this question by clients who have a choice. They can obtain financing or pay cash. Below are the pros and cons of each.
The big advantage to paying cash is that it is cheaper and easier than obtaining financing. The disadvantage is that if you use cash then you no longer have it.
When you borrow money, at today’s rates, you get to use other people’s money for next to nothing. However, the lending process can be very stressful and irritating. Lenders ask for all sorts of crazy information. They will keep digging and asking for things that may seem entirely irrelevant. The documentation you provided at the start of your loan must match what is provided prior to closing. You took a leave of absence because you had a baby? Be prepared to prove that you are still employed.
The loan costs money. You will pay for an appraisal, title insurance, lender fees, discount points and a deposit for homeowners insurance will be collected up front along with a monthly impound account. This could amount to thousands of dollars in charges. Read the “Good Faith Estimate” provided by the lender and ask questions if you do not understand it.
There is also the stress of wondering if the loan will be approved in time for closing. Banks are notoriously slow. Similar to the worst government workers, bank underwriters do not care if you have to move. Your sense of urgency is not theirs.
Fifty-eight percent of all Park City transactions for the first quarter of 2013 were cash. Cash and quick closings can help you negotiate a better price and terms on your purchase because sellers love cash buyers! Paying cash saves many costs associated with borrowing money. It saves the brain damage you may experience dealing with the lending process.
If you do not have the choice of paying cash, then my advice is to work with a local lender who has a relationship with their firm’s underwriting department and who has a good understanding of the Park City real estate market. Visit my website for some of my Park City favorites. Lender Information. If you do have a choice, then you need to weigh the costs and benefits. What are your thoughts on paying cash versus borrowing the money?