Buying a house with cash has a certain appeal. Maybe you dream of plopping down a pile of money at closing, never having to worry about dealing with a mortgage or mortgage lender. Even if it’s “good debt,” for many people, having a mortgage can feel like they have something tying them down.
Here we’ll address the pros and cons of buying a house with cash, as well as how to go about doing it (spoiler: it doesn’t involve a briefcase full of bills).
Can You Buy A House With Cash?
Of course you can. You can do a lot of things with enough money – buy your own private jet and fill it up with cottage cheese if you want to. The stipulation here is that you have enough funds.
Paying cash for a house means buying a home without a mortgage. Cash buyers, as a result, don’t need to account for mortgage interest or closing costs when they purchase a new property. Buying a house with cash can save you money in the long run, but it can also exempt you from the advantages of a mortgage.
The Benefits Of Paying Cash For A House
Along with saving on mortgage interest, there are other benefits of paying cash for a house. One of the biggest benefits is being able to make an all-cash offer. With an all-cash offer you’ll have more negotiating power and have less closing costs.
Because of the power of cash, buyers who make a cash offer stand out in a seller’s market. Real estate transactions can be a balancing act and many sales fall through if the buyer can’t get approved for the mortgage. A cash offer is a sure thing.
The Drawbacks Of Paying Cash For A House
The drawbacks of paying in cash occur when the purchase makes your money too tight. If you buy in cash, it will tie up all that money in one purchase. This can dwindle the cash you have on hand for things like repairs or emergency funds.
With a cash offer, you need to weigh whether your money may be better used elsewhere. Sinking all your money into one asset (your home) may not be the best investment. With a mortgage, you could divert other cash to other investments, like a retirement account or a diverse stock portfolio.
It’s also important to consider the tax implications of not having a mortgage payment. If you pay for your home in cash, you will not be entitled to mortgage interest tax deductions. While not having a mortgage can simplify things, the truth is that your money may be better invested elsewhere.
How To Buy A House With Cash
If you’ve decided buying a house in cash is right for you, do the following to prepare yourself to place an offer.
Consolidate Your Cash
Prior to bidding on the home, consolidate your money into a centralized place. If your money is spread across several investments or accounts, you will need to liquidate it into a single account before closing. Just know that liquidating cash from certain accounts, like a 529 or 401(k), could come with fees and/or tax ramifications.
Prepare For Your Purchase
Resist the urge to show up to the closing with a briefcase full of cash. Large sums of cash make people uncomfortable. There’s nothing insuring the cash if they walk out of the office after the deal and someone swipes it. Plus, money is dirty and who wants to count it all?
Prepare for your purchase by securing the amount you’re paying in the form of cashier’s checks or perform a wire transfer at the closing. To get a cashier’s check, you’ll need to go to your local bank branch or get one online. Each issuer has requirements you’ll need to meet, but it’s relatively easy process.
Many banks will perform wire transfers online, but verify with them first. For the amount you’ll need to buy a home, you’ll probably need to visit the bank branch. You’ll need the recipient’s banking information, including bank name, routing number and their account number. You’ll also likely have to pay a small wire transfer fee.
Negotiate The Final Price
A cash offer is a big deal. Some sellers may take a lower cash offer over a higher, mortgaged offer because the cash offer is much less likely to fall through. Use this fact to negotiate the best counteroffer.
Work with an experienced real estate agent to submit a cash offer appropriate for the market. Chances are, even if it’s lower than they want, it will get the seller’s attention and you can negotiate from there.
Other Important Steps When Buying a Home With Cash
While part of the appeal of buying a home in cash is forgoing a lot of the closing costs, some of these parts of the process should be considered. You will have to pay for them, but they could save you a lot of money and headache down the road. These include:
- Researching title ownership: Whether hiring a title company or doing it yourself, you should make sure the home’s title is free and clear of any liens and encumbrances.
- Conducting a home inspection: An inspection is necessary to assure that the home does not have any major issues. A qualified home inspector will spot flaws in the home. You’ll be able to use this as negotiation leverage or know if you need to walk away.
- Obtaining a land survey: Getting a land survey done will clearly define the boundaries of the property you’re buying, as well as identify any easements.
Is Buying A House With Cash The Right Choice For You?
Depending on your situation, buying a home in cash may or may not be the best option. You need to be sure you have enough funds in reserve for emergencies, potential repairs or even updating your furniture. You don’t want to be in a situation where you’re so cash-strapped you’re risking your security.
On the other hand, for those with the money to do so, buying a home in cash has many benefits. It makes your offer appealing in a competitive market, you can save on some closing costs and you’ll avoid having to pay interest on a mortgage. But your money may be better invested elsewhere and you’ll miss out on mortgage-related tax deductions.
On the fence about whether you should buy a home in cash? Talk to a Home Loan Expert for further advice.