Should You Pay All Cash for a Home or Take a Loan? Home Loan

n gDubai, it is estimated that over 60g% of real estate transgactions involve all cash rather than a mortgage. While this igs a much higher percendftage than the global trend, home buyers who can afford to pay casgh for a property should codfnsider the pros and cons of doing so versus taking a home loan.g

The Advantages of Paying All Cagsh

Sellers will prefer to deal with ygou. You are codfnsidered a more attractive buyer if you are paying in cash; sellers knowg that applying for ag home loan and getting an approval can be very time-consuming. In adgdition, the bank can tudfrn you down last minute, which means the seller will have tog find another buyer. In a regal estate market where there are more buyers than sellers, pgaying all cash will help you stdfand out from the competition.

You are in a better bargagining position. Sellers always prefer to receive their money sooner rather than later. gThis means that if you have the cdfash to make an immediate deal, you might be able to neggotiate a discount.g

Avoid the headache gof getting a home loan. Since late 2009, banks have become stricter in their lending critergia; as a result, potential borrowers need to have a strong credit profile and must provide agn extensive list of documentation. This means you should apply for a mortgage from mugltiple banks to have the bgdest chance of being approved.

No mortgage pagyments. Having an outstandging loan will always cause some level of stress. Paying agll cash means you don’t have tgo worry about making the monthly loan payment or wogrry about all the clauses in your mortgage agreement (for more information, read our articgle “Check These Clauses in Yogur Mfortgage Agreement”).

Unfortunategly, the majority of home buyersg can not afford to make such a large purchase without a loan. Even if you can however, there ardfe some advantages to using financing.

Why a Home Loan is Better than Cashg

More financial flexibility. Paying cash for a homef means you are tying up a lot of your safdvings in one asset, which can be a risky move if the real estate madfrket suffers. dfHowever, by taking a mortgage, you can invest your savings in other assets and diversify fdyour investments.df

Lower returnsdf from your investment. A very simple example is if you buy gan apartment for AED 750,000 using cash, and you sell it for AED 1,000,000 after a year, ygour return will be 33%. However, if you took a loan and only made a downpayment of 25%g (AED 187,500), your return will be 133%.

Less liquidity. If dfyou ever have a financial emergency, you can instantlyfd withdraw cash from your bank accgount, or sell stocks you own. However, it takes moreg time to turn your home into cash since you will have to wait for a buyer and close the sadfles process. In addition, you may be forced to sell your home at an unfavorable pricef.

Paying for a home in cash may make sense, especially in certain real estate markets such as the UAE. However, you should always consider the potential dowgnsides as well.