Things to Consider when Buying a Home with Cash

If you have the means to buy a home with cash rather than heading off to the bank in search of a mortgage, it may be within your best interest to do so. However, before you hand over your money, be sure that you consider all the benefits – and all the potential downfalls, too. 

The Benefits

Buying a home with cash is beneficial to you in many ways. 

  • The seller is more likely to sell to you. Real-estate savvy sellers know that not everyone who makes an offer will be able to secure a mortgage, so when you can pay in cash, you are far more trustworthy, and you also have more room to negotiate. 
  • You won’t pay tens of thousands of dollars in interest. Depending on your interest rate, the amount of your loan, and the length of your loan, you could end up paying several tens of thousands of dollars in interest – or even more – over the life of your loan with a mortgage. When you pay with cash, you can skip this. 
  • You can close almost immediately. When you get a mortgage, the closing process takes time. That time is usually dictated by the length of time it takes the bank’s underwriters to process your mortgage application and fund your loan. Without that mortgage, you won’t have to wait, and you can close almost immediately. 
  • There are fewer fees. Mortgages come with fees that can top out in the thousands of dollars. These include the appraisal costs (mandated by banks before providing loans), loan origination fees, and even closing costs – all costs that your bank would impose if you borrowed the money for the home. 

The Downfalls

Though buying a home with cash might sound like the way to go, there are a few downfalls to consider, as well. 

  • You may not actually be able to afford the house. Just because you have the money in the bank to buy the house, that doesn’t mean you should. There’s a term used to describe homeowners who have only a single asset – their home – and nothing else. It’s called “house poor,” and it’s not a good situation to be in. If a problem with your house should arise and you need repairs, you will likely end up taking out a mortgage or equity loan on your home anyway. 
  • You won’t get the tax breaks. First-time buyers, especially, have access to some pretty significant tax breaks, but that’s only true when they buy their homes with conventional loans. If you nix the loan and pay outright with cash, you won’t have access to those breaks. Before making the decision, calculate the tax breaks you’d be missing out on, then compare those to the amount of money you will save in fees and interest to find out if it’s worth it. 

As you can see, buying a home in cash is certainly advantageous in several ways, but there are some downfalls to consider, too. If you still aren’t sure whether you should pay for your home in cash or apply for a mortgage, talk to your financial advisor.