If you ever watch real estate shows, you’ve probably heard the term “all-cash buyer.”
It’s usually thrown out as a way to sweeten a deal, but what’s the reality about buying a house in cash?
Well, the world isn’t a TV show, and there are pros and cons to buying a house with cash as opposed to getting a mortgage.
Buying a House with Cash Is Increasingly Common
If you’re in a position where you could buy a house with cash, you’re not alone. Since October 2022, the share of buyers purchasing their home without a mortgage has been more than one-quarter of the market, according to the National Association of Realtors.
The Upsides of Paying Cash
If you’re part of that fortunate cohort of buyers that don’t need a loan, the benefits are incredible:
- You’re a more attractive buyer to sellers. This is a big one right now. There is a huge amount of demand for homes in many parts of the country and a limited inventory (particularly in the Indianapolis Metro Area).
- This means bidding wars. One way to be more competitive when you make an offer is to pay cash. That’s preferable to sellers because then they don’t have to worry about what happens if your mortgage financing falls through. A cash-only transaction is also usually faster, so you can get to the closing quicker, which sellers tend to like.
When you buy a house in cash, you don’t have to worry about a mortgage payment of course, but you’re also not going to be paying the interest and fees that come with a home loan.
- Cash buyers have lower closing costs because they’re not paying the fees associated with a mortgage like lender fees and loan origination fees.
- A faster closing isn’t just a benefit for the seller. It’s advantageous for the buyer as well. You might be able to close on a home within a week of your offer being accepted. If you buy with a mortgage, it can take a month or more.
- Once you close, the home really is yours. You don’t have the fear of not being able to make the payments and subsequently losing your home.
The Downsides of Paying Cash
There are a couple cons of paying cash for a home that you might need to consider.
- Your money isn’t liquid. If you’re using all of your cash to pay for a house, it’s not going to be easy to access it when you need it.
- Depending on the market, you could possibly make better returns by putting your money into another type of investment as opposed to putting it all into a house.
- You won’t be able to take advantage of mortgage tax deductions. With itemized deductions, you can deduct the interest paid on the first $750,000 of your mortgage, so your taxable income goes down.
If you’re weighing whether or not to buy a house in cash, it can be a good idea to talk to a financial professional first.
They can go over all the different scenarios and how that choice could affect you for better or worse.
Of course, if you’d still have money in savings or investments after buying a house with cash, then it might make the decision easier.
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