Paying Cash First Then Getting a Mortgage: The Lowdown | #CP

Conventional wisdom tells us that cash is king. Whereas that may work in other markets, this isn’t always possible when buying a home in Australia and in some countries around the world, which is why the vast majority of us use a mortgage to be able to purchase property. However, there are plenty of people who are now finding another solution, buying a home with cash first, and then mortgaging the property later.

Is this a good idea? Before you consult a mortgage broker in the Central Coast or wherever you are located, make sure to take note of the lowdown on using this option to buy a home.

The Strategy

Here’s who this basically works: anyone who wants to buy a home liquidates all their assets so that they have enough money to buy their home outright. This makes them an all-cash buyer, which is more attractive to sellers as they don’t need to finance their purchase. The seller can be assured of a sale instead of hoping that the potential buyer will be able to seal a mortgage.

The last thing a seller wants is for the sale to fall through. This puts cash buyers in a more solid position over other potential buyers who are not cash-based. Essentially, by liquidating your assets and then putting in a cash offer to buy a home, your bid will be a stronger one, even if your offer may be lower than a non-cash offer. In other words, liquidating your assets and then putting in a cash offer is one way, at least, of saving money when buying a house.

Cash First, Mortgage Later

The benefits to buying a house with cash – if liquidation is possible and creates enough cash – and now people are turning to the idea of buying with cash first, and then getting a mortgage later. Whilst buying in cash has its advantages, only to go and get a mortgage later, there are also some pitfalls to this method. It is also possible to lose money between liquidating your assets first and then seeking a mortgage, so anyone considering this tactic must be wary before they attempt to use it.

How Buying with Cash First and Mortgage Later Works

The key thing to consider is which of your assets you will liquidate, and how fruitful this would be. Would it be more sensible to leave one investment alone, whilst freely liquidating another asset? For example, some buyers choose to take money from their retirement savings, whilst others choose assets such as things they own to generate cash.

Once the person has put the cash together, they can buy a home, and then almost immediately will seek to get a mortgage. They will use the loan amount to pay back into savings funds to the same level or replenish any accounts that were depleted. Then they will continue making monthly payments to pay the mortgage back, as would typically be the case.

Is Cash First, Mortgage Later for Everyone?

This method of liquidating assets to generate cash and then immediately getting a loan to put back into the assets can work well for some, but not all. As we demonstrated, by making a cash offer on a property purchase it will give you a competitive advantage, but it is a tactic that poses its own risks. You should never adopt this approach unless you have enough assets that will generate the cash to buy a home outright. Otherwise, it’s not even worth considering, and you should stick with sealing a mortgage before purchasing a home. Consult a trusted mortgage broker near you as they can always provide you with better deals.