How To Buy A House With Cash
Cathie Ericson5-Minute Read
June 23, 2020
Got a lot of money (like, a LOT) burning a hole in your pocket? You might be wondering about buying a home with cash. In all seriousness, buying a house without financing can appear to be a smart solution as an alternative to taking on a lot of debt.
Let’s take a look at some of the pros and cons.
Can You Buy A House With Cash?
Yes, of course you can, provided you have the “cash” at the ready. Of course, we’re not talking cold, hard cash that you’re going to plunk down on the closing table, but rather about paying outright for a house, rather than taking on mortgage payments.
Here are some of the benefits of buying a home for cash:
Your Offer Looks More Attractive
If you’re competing with other buyers who still have to finalize their mortgage or sell another house in order to buy a new one, you’ll be very appealing, coming in with an offer without contingencies. That’s because the seller wants to finalize the deal and be done – not worry about something going wrong with the buyer’s finances at the last minute.
Offering cash is as easy as it comes.
You Can Avoid Fees And Interest
As you know, a mortgage comes with interest that you’ll have to pay over the life of the loan. While rates are relatively low right now, meaning that today’s homebuyers are getting an attractive interest rate, interest will always still be an extra costs that wouldn’t be incurred if you paid cash.
In addition, for buyers who don’t put down at least 20% as a down payment, the home financing will include “mortgage insurance.” Obviously putting down 100% will avoid that cost.
Finally, you won’t have to pay many of the costs that typically come along with closing, such as origination and document fees. (There will still be some fees involved, such as for title costs, inspections and appraisals, to name a few.)
You Don’t Have To Worry About Your Existing Mortgage Complicating The Deal
Another situation where buying a home with cash can be a smart proposition is when you already have a mortgage and are not able to qualify for another one. So if you’re buying, say, an investment property or a vacation home, it can be much easier to just pay cash.
Or if you’re planning to sell your house, but you find a home where the neighborhood trends mean that the best properties are going quick, you might want to make an all-cash offer to ensure you don’t lose the sale to another buyer who’s more equipped to come in quickly.
The Buying A Home With Cash Process Is Relatively Similar, But A Little Easier
If you’ve bought a house with financing in the past, you might be pleasantly surprised that the closing in an all-cash deal will be a little easier. There will be some elements of the planning process that are shorter, as well; for example, you can get started looking at properties right away since you’ll know your budget right off the bat because you are not waiting for a mortgage lender to tell you how much you are “approved” for.
Typically you can close faster as well, without needing to wait for an appraisal and mortgage documents. Aside from that, most of the process will be the same.
Should You Buy With Cash Or Get A Mortgage?
The pros of buying a home with cash boil down to one basic theme – simplicity. Most people would argue that you’ll also pay less if you buy a home with cash, but, it’s important to realize that you might also be giving up some pretty attractive benefits that come with a mortgage.
Here’s why you might want to consider home financing rather than buying a home with cash.
Buying A Home With Cash Ties Up All Your Money In One Asset
Real estate is a solid investment, but if all your money is invested in just one type of asset class, you could be in a bind if the real estate market goes down.
While historically real estate has always recovered over the long run, most investment professionals advise that you diversify your assets – in other words, consider stocks and bonds as complementary investment vehicles, rather than relying solely on residential real estate.
In addition, having so much of your money “spoken for” prevents you from making other investments. Many people like the flexibility of being able to invest when they hear of an investment option that fits their needs.
But if all your cash is tied up in real estate, you’re unable to take advantage of appealing market conditions or investment vehicles.
Buying A Home Reduces Your Liquidity
“Liquidity” refers to the ability to get your hands on your money quickly should you need to. For example, if you have your money in a stock account that you need to tap for medical bills or college expenses, it is a relatively easy process.
However, if your money is all tied up in a house, you can’t access it without selling the property, which can sometimes be a lengthy process.
You’ll Lose Out On A Mortgage Tax Deduction
Most mortgage interest payments are tax-deductible, and while you should never spend money specifically to save on taxes, the fact that you can reduce your tax liability can make the mortgage payments sting a little less.
You Forgo The ‘Homestead Exemption’
Should you find yourself in a bad financial state, where you owe a lot of debt, the homestead exemption helps protect you from creditors. Each state has its own protection limit, but it’s important to note that the protection limits are for your equity in the home, not the value of the home.
So if your equity is less than the protection limit, you are not forced to sell the home. Clearly that wouldn’t apply if you owned the home outright.
So, Which Is Better?
As with most financial issues, the question about whether it’s better to buy a home with cash or have a mortgage rests on your own personal situation and goals, as there are pros and cons to each financing situation.
Also remember that even if you are buying a home with cash, you’ll still need to have sufficient funds each month to cover property taxes, insurance, maintenance and other ongoing needs.
Want to explore your options? If you do want to find out more about getting a mortgage, the professionals at Rocket Homes Real Estate LLC can make it simple. Find out more today.
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