There are several options available to finance your property purchase. While the most common is to take out a mortgage, paying cash is another, provided you have the equity to do so. Is buying cash the best solution? How can you calculate to ensure that the approach is relevant?
What is real estate cash payment?
A cash property purchase is a purchase made without taking out a loan: to finance the purchase, the buyer uses their own cash.
To pay cash, you will need to provide proof of financial capacity to the seller or real estate agency. This document, also called a certificate of funds , proves that you have the necessary funds to complete the real estate acquisition.
What are the advantages of buying in cash?
There are a number of advantages to buying real estate for cash.
Improve your chances of closing the sale at cash price
Paying in cash for the house or apartment you want to buy is an interesting guarantee for the seller .
You have a crush on a property and the seller wants to sell quickly? Paying in cash is a decisive argument to help you win the sale.
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Reducing the time taken to purchase also means you don’t have to find temporary housing between moving in and moving into your new property.
This is sometimes simply the only solution if, when calculating the debt ratio , the bank refuses your loan application.
What is the deadline for a cash purchase?
We mentioned it among the advantages of paying in cash: it is a way to reduce the time taken to purchase your property .
If you finance the property with a mortgage, you should allow between 45 and 60 days from the signing of the sales agreement to obtain a loan offer and sign the contract.
On the other hand, if you pay cash for your house or apartment, the time limit for the sale will be exclusively linked to pre-emption rights . Depending on the geographical area in which the property is located, the town hall of the municipality may in fact demonstrate its priority to acquire said property
On the day the deed of sale is signed, his presence is essential because he is the one in charge of drafting the authentic deed and carrying out the checks essential to its preparation
It is the notary who receives the funds a few days before the sale and transmits them to the seller on the day.
Calculate the profitability of a cash purchase and compare with a credit purchase
To be sure of making the right choice between buying real estate in cash or buying on credit, you must therefore calculate the yield and cost of each of the two options, and study the risks associated with each.
Borrower insurance : the cost of the premium to be paid depends on several factors, including your age and state of health, the amount you choose, the extent of the coverage, etc.
Guarantee fees vary depending on the guarantee chosen. When using a surety organization, which is the most common option, you should expect to pay an average of 1% of the capital borrowed.
For certain financial investments, the funds invested being exposed to the risks of stock market shares, this implies accepting a level of volatility and therefore a risk of loss of capital.
Once you have established all these elements precisely, you can easily check whether the net return on your savings invested (in a rental investment or other) is higher or not than the cost of a possible property loan:
If the return on savings is higher than the cost of borrowing: it is in your interest to finance your property purchase with a mortgage.
If the return on your savings is lower than the cost of borrowing: it is in your interest to pay cash for your property.