One Way to Get an Edge in Today's Real Estate Market: Skip the Mortgage

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The housing market is tight, and paying cash for a home could be your ticket to getting your offer approved.

There's a reason so many people are trying, and struggling, to buy homes right now. Mortgage rates are extremely competitive -- in fact, they're sitting at record lows. That makes it very appealing to buy a home.

But on the flip side, housing inventory is extremely limited, as it has been for months. Many sellers have held off on listing their homes, due at least in part to the ongoing pandemic. As such, there's been an uptick in buyer demand, which has driven home prices upward.

Sellers have set higher and higher asking prices for their homes. On top of that, many buyers have been forced to outbid each other because the market's been so tight. That, too, has resulted in higher home prices and left a lot of potential buyers feeling rejected and disappointed.

If you've been struggling to buy a home this year and really want to get in on that action, there's one tactic you may want to try. But be warned -- it won't work for everyone.

Could a cash offer be your ticket to homeownership?

Most people who want to buy a home can't afford to do so outright. Rather, they need to get a mortgage to afford that property. But if you do have the ability to pay for a home in cash -- say, you've saved a lot, have other assets you can liquidate, or are buying a home well below your means -- then it could give you the edge in getting an offer accepted.

In fact, all-cash sales now make up about 36% of the housing market, reports CNBC, despite the attractive mortgage rates available. Many buyers are not in a position to pay for a home outright. But if you can swing it, it could help you not only snag a home, but pay less for it too.

It's in a seller's best interest to accept a cash offer for a number of reasons. First, there's no delay. When you apply for a mortgage, you have to wait for that loan to close. It typically takes at least 30 days to finalize a mortgage loan. But it can easily take 60 days, especially when lenders are backed up due to high loan volume, as they are now. A cash offer means a home sale can close immediately, which is a plus for sellers who need to move quickly.

Also, when there's a mortgage involved, there's always the risk that the home loan could fall through. You could apply for a mortgage only to lose your job or have another issue that ultimately kills the deal. This would leave your seller in the lurch. With a cash offer, that's not a concern, and so a seller may be willing to accept a slightly lower price to get that money quickly without a hitch.

Don't go to extremes to pay cash

While some people may be able to buy a home in cash and avoid a mortgage, you shouldn't push yourself too far to make that happen. If you're buying a $250,000 home and happen to have $250,000 in cash and investments you can comfortably liquidate, go for it. But you shouldn't, for example, deplete your emergency fund to buy a home in cash. Nor should you sell investments at a loss or raid your retirement plan to come up with the money.

Mortgages exist for a reason, and at today's rates, taking one out makes a lot of sense. You may have to wait a bit longer to buy a home if you can't come up with an all-cash offer. But if you hold out for a seller who's willing to take a buyer with a mortgage, you'll be in very good company.

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