Should You Buy a House with Cash?

Posted by Lauren Schneider on Thursday, February 25th, 2021 at 6:30am.

Should You Buy a House with Cash?On the face of it, it seems like an obvious choice: wouldn't it be smarter to buy a house with cash if a buyer is able? It is true that buyers who pay cash will have certain advantages over those who opt for a mortgage. However, it's vital to consider all the pros and cons when making a purchase of this magnitude. By examining the following variables, potential buyers can decide the best way to arrange their new home purchase.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Cash Can Mean a Faster and Better Deal

Sellers may take cash buyers more seriously because they know the buyer does not have to go through the mortgage process, meaning a faster closing and a more sure deal. In a tight market where there are many people competing for every home on the market, this could be the edge that a potential buyer needs to get the home they want.

A cash buyer may also be in a position to negotiate a lower asking price, especially with a highly motivated seller who wants to sell the property quickly. Most sellers understand the sooner they get their money, the sooner they can move on to the next home or the next investment.

Cash Means Never Having to Worry About a Mortgage

Even with the security of a military job, the future is never certain. A cash buyer owns their home outright from the day the papers are signed. They never have to worry about how they'll pay the mortgage every month, which can mean more money in the budget towards everything from retirement savings to home improvements.

With a mortgage, buyers will put thousands of dollars into interest over the life of their loan. While members of the military and veterans can often get access to more favorable rates, the savings can still make a substantial difference. Individuals who are considering the choice between buying with cash and seeking out a home loan should calculate how much they'll save.

Buying with cash also means skipping expenses like private mortgage insurance (PMI). This insurance is typically required when applying for a mortgage with less than 20 percent down. While borrowers can drop PMI once they have enough equity, cash buyers never have it in the first place.

Cash Also Has Potential Downsides

With all these advantages, there are also downsides to consider when buyers pay for a home with cash. For example, spending all of their money on their home can mean reduced liquidity. Additionally, if someone puts all of their money into their house, they can't easily access it to spend on other things, which can be an issue if the home buyer wants to sell. They may not have enough money for a new home purchase until the old home is sold.

Investing experts recommend that individuals diversify their wealth into vehicles that include real estate, stocks, bonds, and other assets. More money in the home means less available for the rest.

In most cases, potential buyers should run the numbers on several scenarios to see whether paying cash or seeking a mortgage is better for them. Every buyer's circumstances are different, and research can reveal the best move.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

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