It is not common for people to purchase property with cash, especially owner occupiers. However, some investors need to purchase with cash to take advantage of an opportunity. Most buy with cash with the intention of later getting a mortgage. But just how easy is it to remortgage after buying with cash?
What are the benefits of buying with cash
Paying cash for a home can have several benefits, such as avoiding mortgage interest payments and the hassle of obtaining financing. Despite the initial savings, there may come a time when you need to remortgage after buying with cash.
Remortgaging a home that was purchased with cash can be a complex process, but it is possible if you meet the necessary criteria. In this article, we’ll discuss what you need to know about remortgaging a home that was paid for in cash.
What is a cash purchase?
It is important to understand the concept of a “cash purchase”. A cash purchase simply means that you paid the full purchase price of the home without taking out a loan or other type of financing. This means that you’ll need to have a significant amount of cash available to be able to buy a property outright. Buying with cash (assuming you have it) has two advantages.
Speeds up the purchase process
Obtaining a mortgage can be a lengthy process, particularly if you are buying offshore. Buying with cash will eliminate the requirement to get a bank approval for mortgage and will significantly reduce the time required to complete a purchase. This is useful option when it comes to time sensitive transactions.
Negotiation leverage
Many buyers find themselves in a competitive situation when they are buying property. Assuming all offers are at or around the same level a vendor will prefer a cash offer over one which is subject to finance. Using a cash offer as a negotiation tool is a powerful one. In many situations it may well be that an owner will accept a cash offer at a lower level than a higher one which is subject to finance.
Why would you want to buy with cash?
For most people the idea that someone will buy a property with cash is crazy. However, there are situations where it makes sense. Consider the following.
Distressed seller
A distressed seller or someone who just needs to move quickly will likely accept less for a property from a purchaser who can buy with cash. If the purchaser has an immediate need to sell they will likely have no other option.
Developer at end of financial year
For investors buying off plan there are many scenarios where they can buy exceptionally well from a developer. In scenarios where a developer needs to meet a sales target, generally at the end of a calendar or financial year. Or to sell the last remaining plot in a development to close a marketing suite. They will generally sell at a considerable discount if the purchaser is buying with cash.
This is a pretty common tactic for professional investors, who buy in the new build market.
Remortgage after buying with cash
Once you’ve made the purchase, you’ll then need to contact a lender in order to set up a remortgage. The process of remortgaging a home that was purchased with cash is no different than any other remortgage.
You’ll need to provide the lender with your income and employment information, a credit report, and proof of the cash purchase. You’ll also need to have built up some equity in the home before you can remortgage. Equity is the difference between the market value of your home and the amount that you owe on it. As you pay off the existing cash loan, you’ll be able to build up equity in the home, which will make it easier to remortgage.
Another important factor to consider when remortgaging a home that was purchased with cash is the interest rate. The interest rate you’ll receive will depend on your credit score and other factors.
Finally, it’s important to understand the costs associated with remortgaging a home that was purchased with cash. As with any loan, there will be closing costs and other fees associated with remortgaging. It’s important to understand these costs before you decide to remortgage so you can be sure you’re getting the best deal possible.
In conclusion, while it can be more complex to remortgage a home that was purchased with cash, it is possible. Be sure to understand all of the costs associated with remortgaging before you make your decision and speak with a lender about your options. With the right information, you can successfully remortgage your home and get the best deal possible. Check out our other posts covering property investment strategy here.
We have built Du Val Global to help investors think through the issues which matter when it comes to investing.
Du Val Global
We built Du Val Global, real estate investment software designed to help investors make better investment decisions when they buy property. Our platform provides investors with the real estate investment tools to help with critical decision-making, including
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