November 11, 2021


While most people take out a mortgage to buy a house, some opt to pay cash. While buying a house with cash skips a lot of paperwork and keeps you out of large debt, there are some downsides to it.

Right now, the average price of a home is $324,900. As a result, 87% of recent home buyers took out a loan, according to the National Association of Realtors.  With that said, if you do have enough money on hand to purchase a house, it might seem like a smart financial move.

This article will explore the pros and cons and how to buy a house with cash. Let's dive in!

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Should I Buy A House With Cash?

The first question that needs to be asked is whether or not you would be able to purchase the house by paying cash.

If you do have enough money on hand, it might seem like an easy way to buy a home without having to deal with lenders and tedious paperwork, but it isn't as simple as writing an offer on any property. Before making a cash offer, you'll need to ensure that the owners are willing to accept it. Some sellers will only accept an offer if there's financing involved.

When applying for loans at banks or other high-interest rates, your options are limited depending on your credit history. If you're purchasing a home in cash, you can make your offer on any house regardless of whether or not the sellers will accept a loan.

When buying a home with cash, the only thing you need is money. If, for some reason, the deal falls through and you lose your deposit, you're still left with the rest of your cash. However, suppose financing is involved, and the deal falls through due to lender requirements or another factor outside of your control. In that case, there's a good chance that you'll owe the lender fees even though they aren't receiving their initial investment back from the sale.

Whether or not you should buy a house with cash is based on your financial ability and what is best for your situation. Next, let’s see what’s involved in buying a house with cash.

Buying A House With Cash

So, you've decided to buy a house with cash. How do you go about doing so?

The first step is to make an offer. This will be presented to the seller. You’ll know you’re getting a good deal on the house if it’s listed below market value. You can use real estate or rental prices in that neighborhood for comparison purposes. However, when making an offer, you can offer less than the market price due to the fact you’re paying in cash. Sellers are more willing to sell for less to a cash buyer because the process is often quicker. 

It's a good idea to work with a real estate agent to find the right house for you. They will also guide you through the home buying process to ensure you are making the right decision.

Before making an offer, it's good practice to go and check out the interior of the property. Your real estate agent will take you through the house when the seller is not home. 

Some buyers discover damages on the property that the seller didn’t disclose initially. This could delay the settlement date because it requires more negotiation between you and the seller. For this reason, it’s crucial to have a professional home inspection after making your offer. 

Once inspections and appraisals are conducted and concluded, you can go to settlement with the seller. When all of the paperwork is signed, payments are made either by cashier's check or wire transfer, and the keys are handed over.

Pros Of Paying Cash For A Home

Paying cash, if possible, may lower your stress levels significantly because there's no lender to deal with or large amounts of paperwork that need to be filled out. If you do have enough money on hand to purchase the house of your dreams, why not take advantage of it? Let's list all of the potential benefits below.

No Mortgage Payments, Interest, Or Other Fees

If you have enough cash on hand, you can skip the home mortgage loan and all of the fees involved with it.

Paying in full means there's no interest cost for the loan over a longer period of time. You'll come out ahead if there is market fluctuation or rising costs of home prices.

Paying in cash allows for higher profit margins if you decide to rent out properties because they will be income generators from day one without any extra fees due to setup or tax rates by location. Furthermore, there are no monthly mortgage payments to worry about either, which lowers your risk exposure if something goes wrong, like an inability to pay.

Buying in cash will lower your monthly home expenses because there's no mortgage payment to make. Without a large loan like a mortgage, you have more financial freedom to use your current savings or income on other investments such as small businesses, startups, or stocks. 

If you don't need financing for personal reasons, paying cash is the only way you'll be able to purchase a home without issues depending on where you live and what type of property is being offered for sale.

Additionally, paying in full lets you have more negotiating room when purchasing a home since sellers usually want as much cash as possible so they can avoid losses from complex loans with long payoff periods and high rates of interest.

Cash Buyers Are More Attractive To Sellers

Another positive for cash buyers is that they are more attractive to sellers who are interested in someone who can close quickly. They are often more likely to work with a cash-only buyer because they know the money is there.

Not having to wait on purchasing your new home is another benefit of paying cash because you're free to do whatever you want immediately after closing the deal, such as renting it out or renovating it.

When sellers agree to go with a buyer who needs financing, there is room for the deal to fall through due to issues with the financing or the buyer's mortgage application.

Cash Buyers Have More Leverage

Cash home buyers have more leverage when negotiating because the lack of financing means that you can move forward without any added stress or worries of delays from the lender or missing paperwork.

Having more time and money at your disposal is always advantageous since it gives you the power to push for decisions that either benefit you or better fit into your life goals. Generally, cash buyers will negotiate with sellers to get the price down. Cash home buyers are easier to work with than people who need to get mortgages approved before deciding on a house sale, so it doesn't come as surprising if they agree on reasonable terms and prices just to close quickly.

This amount of flexibility is beneficial for both parties involved because it eliminates contingencies and risk. There is also a lower chance that something unforeseen could come up to make the sale collapse.

No Mortgage Interest

When buyers can pay in full, it helps them avoid high-interest payments that normally go along with financing a house.

Even though interest rates are fairly low right now, add extra expenses to buying a house. If you take out a 30-year fixed-rate loan for $90,000 with a 3% interest rate, you will end up paying over $60,000 just in interest. 

Let’s also not forget that if you make a down payment of less than 20% upon initial purchase of the property, you’ll also have to pay private mortgage insurance (PMI) each month.

Close On The House Faster

When you buy a house with cash, you can expect to close on it faster than if you had a mortgage loan. A cash sale goes through quicker because you already have the money in your hand. There's no need to wait for a lender to approve or underwrite your home loan. This usually results in closing the sale within just a few days rather than waiting on a lending institution for weeks at a time.

Lower Closing Costs

Another benefit of cash sales is that cash transactions have lower closing costs compared to purchases with a mortgage loan.

Since buyers paying with cash don't need lenders to help them buy homes, there is no need for lender fees to be paid when the purchase occurs. This reduced overhead amounts to lower closing costs and puts cash buyers in a better position than homebuyers who rely on loans from banks and lending institutions.

A Simpler Closing Process

One of the most significant benefits cash sale homebuyers enjoy is that they don't have to wait on financing. There's no need to coordinate bank loan requests or keep track of documentation. This means they can expect a simpler closing process because there won't be anything holding them back from closing when they want.

A Simpler Closing Process


Cons Of Paying Cash For A Home

Now that we've covered the pros of buying a home with cash let's look at the downsides. Some of these won't show up right away but instead, have longer-lasting effects that could appear later down the road.

Your Money Is Tied Up In The House

When cash is used to buy a house, there may not be much money left over. When the cash from this sale is used, it's gone, and you can't use it for other things unless you have another cash source that you previously set aside for a purchase like a car or a college education fund.

Suppose your current cash supply becomes critically low. In that case, you then have nothing left after buying an expensive home, which could ultimately lead to bigger problems later on.

Cash Buyers Miss Out On Tax Benefits

Another thing to consider is that mortgage interest tax deductions don't apply when buying a house with cash. Home mortgage interest tax deductions allow homeowners to deduct mortgage interest from their taxes if their mortgage is less than $750,000. 

These mortgage interest deductions can help defray some of the costs and decrease what people would pay in taxes every year. If the mortgage is not included, there is no option of including it in the taxable amount.

Additional Expenses Still Apply

Even if you don't have a mortgage, there are still other costs related to owning a home. Property taxes, insurance, and energy bills will still need to be paid each month. In all likelihood, you also have to budget some money per year for regularly servicing your property.

The only monthly payment you're eliminating when you buy a house with cash is the monthly mortgage payment, and the interest or PMI tacked onto it.

It Can Be Harder To Tap Into Your Home Equity

Finally, cash home buyers should also be aware that it may not be easy to tap into their home equity.

Most work with cash because they either don't want to take out loans or try to avoid the risk associated with borrowing money from a lending institution. Either way, this means cash home buyers won't have many options when their cash reserves run low, and they need more cash on hand.

The exception is if you decide to refinance your property after five years of living in your new home, which would allow you to access the equity you have in the house.

It Can Be Harder To Tap Into Your Home Equity

Finally, cash home buyers should also be aware that it may not be easy to tap into their home equity.

Most work with cash because they either don't want to take out loans or try to avoid the risk associated with borrowing money from a lending institution. Either way, this means cash home buyers won't have many options when their cash reserves run low, and they need more cash on hand.

The exception is if you decide to refinance your property after five years of living in your new home, which would allow you to access the equity you have in the house.

Don't Assume Cash Is Better

In the end, you need to consider all of your options and carefully examine your situation. Speak to a professional financial advisor about your personal finances to help you decide whether or not you can buy a house with cash.

Keep in mind the tax deductions you'll miss in the future. Also, consider the cash you'll have left after purchasing the home. Will it be enough for you still to make your payments and other necessary daily purchases?

The choice is ultimately up to you, but be sure to do your research.

About the Author

As a native Washingtonian, Carlos Reyes’ journey in the real estate industry began more than 15 years ago when he started an online real estate company. Since then, he’s helped more than 700 individuals and families as a real estate broker achieve their real estate goals across Virginia, Maryland and Washington, DC.

Carlos now helps real estate agents grow their business by teaching business fundamentals, execution, and leadership.

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