At this point in your life, you’ve likely heard many times that carrying debt is not a good thing and paying in cash is advised to ensure you can afford what you’re buying instead of relying on credit to pay for it later. However, you may not have considered paying for your next house in cash, or putting as much cash as possible toward the purchase. There are a lot of factors to consider when it comes to paying for a home in cash versus financing it. Learn more about the differences, what you can expect and how to determine which method of payment is right for you.
Can You Buy A House With Cash?
You can absolutely pay cash for a home instead of financing it. In today’s real estate market, it can help give you an edge over other potential buyers. It’s important to be aware of how the process works if you choose to buy with cash, as it isn’t as simple as it may seem.
The first (and most obvious) step is to make sure you have enough cash to make the purchase and that it’s all in the same place. This means if you have money in various accounts or locked away in stocks, you’ll need to gather it together first. Before you do this, it’s wise to talk with a financial advisor and tax professional so you understand the bigger picture of what impact your choices will have on your personal finances.
If you’re planning to make a cash offer and want a competitive edge over other potential buyers who may do the same, it’s advised to get proof of funds from your bank. This letter is more secure than simply handing over a bank statement showing your account balances, which can contain sensitive information.
Once you’ve found your dream home and your cash offer is accepted, you’ll need a settlement agent if you’re not working with a lender. This person will help you move through the closing process to ensure everything goes smoothly. They’ll act as an independent third party that will hold, account for and transfer money while also facilitating the title search and transfer.
Keep in mind that no one actually wants to be handed a wad of cash so be sure to factor in obtaining a cashier’s check.
Pros Of Paying Cash For A House
There are many benefits you’ll encounter should you choose to pay for a home in cash:
Cash Home Buyers Can Be More Attractive To Sellers
Offering to pay in cash is often more attractive to sellers because in a competitive market, they don’t have to worry about excepting an offer that’s conditional on financing. A cash home purchase also has the flexibility of closing faster (if desired by both parties), which can also be attractive to sellers who are looking to relocate quickly.
No Mortgage Payments, Interest Or Other Fees
Paying cash means you won’t have to make mortgage payments, worry about accruing interest during that payment plan or dealing with other costs like mortgage origination, appraisal or other fees charged by a typical lender when assessing a buyer.
Cons Of Paying Cash For A House
Paying cash has its benefits, but it also has its pitfalls. There are a few important factors you’ll want to keep in mind as you make your decision:
Your Money Is Tied Up In The House
Tying up all your money into the house can be a serious risk. What if you need that money for something else down the line? Are you draining your savings account to make this cash house payment? What will you do if an emergency arises? Take a long, hard look at your finances and determine what you’ll be left with if you choose to pay cash for a home and what impact that decision will have on your overall financial and investment portfolio.
Cash Buyers Miss Out On Mortgage Tax Deductions
If you itemize deductions on your tax return, you’ll want to know that having a mortgage can reduce what you owe, since mortgage interest payments are tax deductible. If you make a lot of money and need to maximize your deductions to offset those earrings, this can be an important factor in making the decision to pay with cash.
Additional Expenses Still Apply
Paying in cash doesn’t mean you avoid paying all extra expenses associated with buying a home. Be sure to keep insurance, general maintenance, renovations and other expenses in mind as you budget to buy a home with cash.
The Bottom Line: Should You Buy A House With Cash?
If you find yourself sitting on a large amount of cash at any point, it may be better in the long run to invest some money instead of using all of it to avoid getting a mortgage. You should definitely discuss your questions and concerns with a financial advisor, as they can help you determine if it’s best to be mortgage-free or invest money in multiple places to grow your long-term wealth.
If you’d like to learn more about the process of applying for a mortgage and how to weigh your options when it comes to paying for a home in cash, reach out to our qualified team of professionals at Rocket Mortgage™.