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I am ready to buy a house. I have sufficient savings to cover the purchase price, i.e. pay cash. However, in order to ensure I have liquidity to cover renovations, I would like to take out a modest mortgage (£50k).

I am contemplating buying with cash, in order to simplify the purchase process (and perhaps entice the seller to accept a lower price), and then take out a mortgage once I am the legal owner.

Are there any drawbacks to this plan?

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    Will you have money left over for emergencies? If no yes that IS a drawback.
    – JonH
    Commented Mar 4, 2022 at 3:19
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    I can't speak for the UK; in the US, sometimes a cash-out refi has a higher interest rate and/or fees.
    – stannius
    Commented Mar 8, 2022 at 19:19

2 Answers 2

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In theory this sounds like a good idea but in practice it will depend on the seller.

If the seller is in an upward chain (they need the money for their next property) then a cash buyer, offering the same price, will be more appealing than a buyer who has to sell their property as there is less chance of the chain falling through and them losing the purchase of their next property. However if they are in a chain then they may not be willing to take a lower offer due to them requiring the cash for their next purchase.

If the seller is not in a chain then they might hold out for a higher offer, whether that be a cash or mortgage buyer.

If the seller requires the cash instantly to pay off encroaching debt, for example, they they may be willing to accept a lower offer in order to quickly secure the funds.

So, to summarise, you may only get a better price paying by cash if the seller needs the money quickly or is willing to take a lower price for less chance of the chain falling through.

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I think it's a great idea to pay cash in exchange for getting a "great deal" and this is exactly what successful real estate investors do. Stannius made a comment above on the question that in the USA a cash-out refi will have a higher interest rate, which is correct, however this should be more than offset because some sellers value an all cash offer, which is just another way of saying you can pay less money (a good deal). If you're not going to get a good deal by paying all cash, then it would silly to offer something the seller does not value.

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