The Benefits of Buying a Home With Cash
As a homebuyer in a seller's market, making your offer stand out from the competition is important. This could mean offering more money, waiving certain contingencies, and negotiating an appraisal gap. What will strengthen your position, though, is purchasing the home with cash.
Keep reading as we discuss why you should pay cash for your next home and when it makes sense to obtain financing through a mortgage instead.
Pros of an all-cash offer
Imagine buying a house outright and not having a monthly mortgage payment. Some financial experts will tell you that it's the only way to purchase real estate. Here are five benefits of paying for your home with cash.
There's a lot to like about a 30-year mortgage, from low monthly payments to affordable down payment options. Yet most homeowners don't realize that their loan program adds tens of thousands of dollars in overall interest. When you pay cash for a home, you eliminate the need to pay interest on a mortgage.
No lending required
The mortgage underwriting process can be extensive. Lenders must consider factors such as credit score, household income, and debt-to-income ratio (DTI) when accepting or denying a home loan. You won't have to worry about qualifying for a mortgage if you are paying cash because you won't be getting one.
Cash offers are more attractive
Put yourself in the seller's shoes for a moment. Would you rather work with a bidder whose financing may fall through at the last second or an all-cash buyer? You could score your dream home for less if the seller knows you won't have to take out a loan.
No additional debt
Whether borrowers opt for a 30- or 15-year mortgage, they'll be taking on a significant amount of debt. Purchasing a residence with cash keeps you from tying up your hard-earned money in one asset. You can put the funds you would've used for a mortgage toward retirement, your child's college tuition, or even an investment property.
You become the sole owner
Not interested in spending the next few decades paying off a mortgage? If you can forgo traditional financing and buy a house with cash, you will own the property outright from the beginning. It's also worth mentioning that cash buyers have an easier time selling should they choose to do so in the future.
Cons of an all-cash offer
Keep in mind; there are some potential downsides to buying a home with cash. Here are three things you lose when purchasing real estate outright.
Let's say you and your spouse put $1,500 a month toward a "home" fund. After 20 years, you'll have saved a whopping $360,000 for a place of your own. But is it the smartest move to put all your eggs (or money, in this case) in one basket?
Alternatively, you could put $1,500 a month toward that same fund for just one year. By that point, you'll have saved enough for a 20% down payment on a $360,000 home. Every mortgage payment you make helps you build equity, while any leftover money at the end of the month could be used to replenish your savings account.
A cheap source of financing
Good luck finding a cheaper source of financing than a mortgage! Home loans typically come with favorable interest rates, especially compared to credit cards.
One of the advantages of homeownership is deducting mortgage interest tax. Those who choose to itemize may get money back from Uncle Sam during the spring. Be aware that you will not receive a separate mortgage interest deduction if you take the standard deduction.
Should you buy a house with cash?
There's no right or wrong answer here. Whether you choose to buy a house with cash depends on your situation. Just because you know someone who purchased property without a mortgage doesn't mean it's the right move for you.
Spend some time going through your pros and cons with this possibility. Is it in your best interest to delay your homeownership goals until you've saved hundreds of thousands of dollars? For most people, the answer is no.
Go ahead and start the conversation with a lender if you're on strong financial ground. Ask them questions and get a feel for their expertise. The person you work with should keep things simple, customize a loan, and be transparent from start to finish.