Is buying a house with cash right for you?

According to the Washington Post, about 30% of all American home buyers paid in cash in the first four months of 2021. If you are considering making a cash offer, it’s a good idea to let your real estate agent know ahead of time, as it’s a great bargaining chip to use during negotiations.

• Competitive edge. As a cash buyer, you may have an edge in a competitive seller’s market because sellers don’t have to worry about your financing falling through. This happens sometimes at the last minute if a buyer can’t get approval from mortgage lenders. 

• Faster sale. Cash transactions can also move faster, a bonus if the seller is looking to move quickly, which may give you a negotiating advantage when it comes to the purchase price. You’ll save time since you won’t need to deal with all of the paperwork and administrative duties that come with applying for a mortgage. You also don’t need to wait for the lender to approve and then process your loan.

• Save on lifetime interest. If you buy with cash, you won’t have to pay interest on the loan or any other fees associated with a mortgage, which could save you thousands, or potentially hundreds of thousands, in your lifetime.

• Lower closing costs. You’ll pay lower closing costs when you buy a home with cash because you won’t have additional closing costs or title insurance charges that come from a mortgage lender.

• Own your home outright. If you forego using loan funds and buy a home with cash, your home will be fully yours. You can feel secure knowing that, even if the housing market fluctuates, you own your home outright and debt-free.

Buying a house with cash limits your liquidity, which can be a big disadvantage if you don’t have other investments. 

• May narrow your investment portfolio. It’s possible that carrying some debt on your home could allow you to invest in other assets, which could increase your wealth over time. 

• Less liquid cash on hand. If unforeseen costs pop up and find yourself needing to sell your home, it can take a long time to do so, or you might be forced to sell at a loss. For this reason, you might not want the bulk of your cash tied into a single property.

• No mortgage tax deductions. If you buy a house using mortgage funds, you are eligible for mortgage tax deductions that can reduce your taxable income—if you also itemize your tax deductions.

• Still additional costs. While you won’t have monthly mortgage payments or other mortgage-related fees when you buy a home with cash, that doesn’t mean you won’t have other homeownership expenses. You’ll still need to pay property taxes, homeowners insurance, or homeowners association fees. Make sure you have enough cash leftover after buying the house to afford these expenses, too.

 Ultimately, the best way to decide whether or not to buy a house with cash is to go with the option that gives you the best deal for your money and will provide you the greatest ROI. It may be a good idea to consult financial advisors to advise on what is best for your individual financial situation and help decide which option is right for you. 

Bungalow is the best way to invest and manage your real estate portfolio. We work with you to identify, purchase, fill, and manage residential properties—so that you can enjoy up to 20% more in rental income with a lot less stress. Learn more about Bungalow.