What Are the Pros and Cons of Buying a House in Cash?
If you ever watch real estate shows, you’ve probably heard the term “all-cash buyer.” It’s usually thrown out as a way to sweeten a deal, but what’s the reality about buying a house in cash? The world isn’t a TV show, and there are pros and cons to buying a house with cash as opposed to getting a mortgage.
Buying a House with Cash Is Increasingly Uncommon
If you’re in a position where you could buy a house with cash, you’re in the minority. With the median home sales price in the mid-300,000s, it’s not realistic for most people. Around 87% of home buyers finance according to the National Association of Realtors’ 2020 Profile of Home Buyers and Sellers.
If you do have enough saved to buy a home outright, that doesn’t mean you’re necessarily showing up with a suitcase full of cash.
What it does mean is that you’re not getting a loan. You might have savings, you may sell another property, or you could have investments you’re going to use.
The Upsides of Paying Cash
If you can pay cash for a home, there are undoubtedly some benefits, including:
• You’re a more attractive buyer to sellers. This is a big one right now. There is a huge amount of demand for homes in many parts of the country and a limited inventory. This means bidding wars. One way to be more competitive when you make an offer is to pay cash. That’s preferable to sellers because then they don’t have to worry about what happens if your mortgage financing falls through. A cash-only transaction is also usually faster, so you can get to the closing quicker, which sellers tend to like.
• When you buy a house in cash, you don’t have to worry about a mortgage payment of course, but you’re also not going to be paying the interest and fees that come with a home loan.
• Cash buyers have lower closing costs because you’re not paying the fees associated with a mortgage like lender fees and loan origination fees.
• A faster closing isn’t just a benefit for the seller. It’s advantageous for the buyer as well. You might be able to close on a home within a week of your offer being accepted. If you buy with a mortgage, it can take a month or more.
• Once you close, the home really is yours. You don’t have the fear of not being able to make the payments and subsequently losing your home.
The Downsides of Paying Cash
There are a few cons of paying cash for a home that you do have to think about as well.
• Your money isn’t liquid. If you’re using all of your cash to pay for a house, it’s not going to be easy to access it when you need it.
• You could make better returns by putting your money into another type of investment as opposed to putting it all into a house.
• You won’t be able to take advantage of mortgage tax deductions. With itemized deductions, you can deduct the interest paid on the first $750,000 of your mortgage, so your taxable income goes down.
If you’re weighing whether or not to buy a house in cash, it can be a good idea to talk to a financial professional first. They can go over all the different scenarios and how that choice could affect you for better or worse.
Of course, if you’d still have money in savings or investments after buying a house with cash, then it might make the decision easier.