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Buying a House with Cash: The Pros and Cons

February 10, 2022
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Just because you have accumulated enough cash to purchase a house doesn’t mean doing so is the right thing for you to do. According to the National Association of REALTORS® 2020 Profile of Home Buyers and Seller, 87% of recent home buyers chose to finance their purchase. What’s more, a percentage of those people had enough cash to purchase their home outright without the help of a loan, but opted for one anyway. So, why would someone opt for a mortgage if they could have purchased their home outright? What are the benefits of buying a house with cash?

Keep reading our guide to buying a house with cash to find out the answers to the questions above and more.

Can You Buy a House with Cash?

Yes! However, when we say cash, we don’t mean you’ll be showing up to the seller’s door with a duffle bag full of money. A cash deal simply means that the buyer will be purchasing the home using 100% of his or her own money. Real estate agents love working with cash buyers because it means there is less of a chance of a deal falling through.

What Are the Pros of Buying a Home with Cash?

Along with the fact that real estate agents love cash buyers, what are the other benefits of buying a home with cash? Here are the main pros:

  • Avoiding the complicated loan approval process
  • No monthly mortgage payments with interest
  • Cash offers are more attractive to sellers and real estate agents
  • Lower closing costs and a faster closing process
  • You own the home now instead of in 30 years

What Are the Cons of Buying a Home with Cash?

Now that you know the pros of buying a house with cash, what are the main cons of doing so? Some of the main drawbacks of buying a home with cash are:

  • A large chunk, if not all, of your money is tied up in your home: You may miss out on investment opportunities that could grow your money.
  • A mortgage may allow you to purchase a more expensive home: Cash buyers don’t usually get a discount making it possibly more beneficial to combine your savings with a loan so you can outbid the competition.
  • Cash buyers miss out on tax deductions: Homeowners with a mortgage can reduce their taxable income by deducting interest paid on the first $750,000 of their mortgage.

How to Buy a Home with Cash

With all the pros and cons of buying a house with cash in mind, what does the purchase process look like? How does it differ from purchasing a home with a home loan? Lets go over what the process of buying a house with cash entails and the things you’ll need to get the keys to your new home.

  1. Gather your funds and put a budget together: Some people have their money strewn across multiple accounts with different withdrawal limits or tax implications. It’s important to gather all of your money in one place before making an offer.
  2. Obtain a proof of funds from your bank: Like a mortgage preapproval letter, your bank can provide you with a proof of funds letter stating you have the means and ability to make the purchase.
  3. Find your dream home: Make sure the home you want is within your budget and offers a chance to increase in value.
  4. Make an offer: Once you have found the ideal home for you, it’s time to make an offer. However, to protect yourself, you’ll want to make sure that the offer has contingencies in place, such as an appraisal contingency and an inspection contingency. Contingencies will help save you money if anything ends up affecting the value of the home before closing.
  5. Find a settlement agent: A settlement agent will help you with many things throughout the buying process including things like making sure the process goes smoothly, holding and transferring money if necessary, and telling you what you’ll need at closing.
  6. Get an inspection: Inspections are a crucial stage in the buying process as they can determine whether any repairs may need to be made and save you money in the long run. Check out our Buyers’ Guide to Home Inspections to learn more.
  7. Get an appraisal: Although you don’t necessarily need to get an appraisal because you are paying cash, it’s still smart to make sure that the house you are buying is truly worth what you are paying for it.
  8. Conduct a final walk through: The last thing you will do before closing, your final walk through will help you ensure the house is in the condition you are expecting.
  9. Bring a check for the amount to the closing table: Your settlement agent will detail what exactly is needed, but generally you’ll need to bring an ID and a cashier’s check or wire transfer to the closing table. Once the money trades hands, you’ll receive the keys to your new home.

Takeaway

Buying a home with cash comes with its own pros and cons. If you can afford to purchase a home outright with cash, you’ll avoid things like the complicated loan approval process and large monthly payments with interest. However, buying a home with cash also means that you’ll have a large amount of money tied up in one asset that could be invested elsewhere and you could also be missing out on tax deductions allotted to homeowners with mortgages. To learn more about the homebuying process, read our blog post about the homebuying timeline or contact us directly. 

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