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Should I Buy With Cash or Finance it?

Posted by Helena Grossberg on September 14, 2014
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If you want to buy an apartment in Florida, the question always comes up during the process. Of course, if you can buy with cash you might not even think about financing it, but… thinking again, is it worth it?
The price of a property purchased cash or financed is the same. What is different is the financing costs. And that is not everything that you should take into consideration.

Costs Related With Financing:

Interest Rates – Most home mortgages in the USA are fixed rate for 30 years, without penalty for pre-payment. For foreign nationals, it is necessary make a deposit of 30-35% and the interest rates are between 4-6% a year.

Processing – If the loan process is done directly with the bank, there are a few costs related with the financing, such as appraisal and administrative costs.  Some banks might also charge points to lower the interest rates.

Mortgage Loan Origination – If the loan is done with a mortgage broker that will guide you through the process and find the best bank, with the best interest rates, and find you a bank that can work with your specific conditions, such as second or third investment properties, or a purchase as a legal entity, then there are additional charges added to the process.

Added Time – A cash purchase can be closed within a few weeks, whereas a financed purchase needs at least 45 days.  Sometimes a seller will give preference to a cash offer because of this delay.

There are condominiums whose owners cannot secure financing in Florida, or that will make it very difficult to obtain a loan. This is because the condo association requires its owners to have a strong financial position. They do this by limiting a percentage of owners that can finance at a particular time. Other condominiums have in their by-laws rules that banks find difficult to finance, such as co-ops, where owners participate in a share of the building rather than owning their own apartment downright.

Other Factors to Consider:

Personal Name or Legal Entity – It is always easier to get a loan on a property that is in a personal name. A bank will request many documents that show proof of funds, ability to repay the loan, and some type of financial background information from your bank and your accountant.

Income Taxes – All income must be reported to the government, and if the apartment is ever rented, an accountant can help deduct part of the financing from the rent income.

Opportunity – The interest rates in the USA now are very low, about 4-6%, depending on the risk factor of the buyer. If the amount to be financed can be invested in another product that can yield more, it is worth getting a loan for the property and invest your money to get the higher yield.

Your Own Financial Situation – Never compare your own situation with a friend or acquaintance that did an investment in Florida. Each individual knows his own needs and capabilities and should make his own financial decisions. Maybe the capital to be invested in a property might be needed in another venue within one, two, or five years. It is important to make these considerations beforehand to avoid selling your property before you are ready.

Let’s talk about it. At ALM, we have  wonderful options for you.  Now, also offering concièrge services.

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