How to Buy a House With Cash

FT Contributor
A man holds out stacks of cash while a woman holds out keys in front of a house.

If you’ve focused on saving your money and you want the ability to negotiate freely, buying a house with cash may be a great option for you. However, this option isn’t always the best choice, especially for homebuyers who aren’t prepared with the funds.

While the idea of owning a house debt-free is enticing, it may not be the best investment for you and your financial future. Before you decide to empty your savings account on a home, it’s important to weigh the pros and cons of buying a house with cash.

Table of Contents

Can You Buy a House In Cash?

You can buy a home with cash, but you’ll need to analyze your financial situation first. Not only do you need to keep in mind the purchase price of the home, you’ll also need to review the costs of buying a home, such as closing costs and inspection fees. If you want to buy a home without a mortgage, you must be able to cover all these costs and the price of the home when closing.

Should You Buy a House In Cash?

Your personal financial situation and goals will determine whether you should buy a home with cash. Even if you have the cash to buy a house outright, it’s important to understand the advantages and disadvantages to purchasing your home without a mortgage. There are some ways you‘ll benefit from buying a home with cash, but you may lose out on other financial opportunities by emptying your bank account to buy your home.

Pros of Paying Cash for a House

If you can afford it, there are many advantages to paying for a new home purchase with cash, including:

  • No interest charges or mortgage costs: When you obtain a home loan, you’re paying interest and other mortgage costs over the life of the loan.
  • Your offer stands out: Cash offers aren’t common and sellers don’t have to wait for the buyer to obtain mortgage approval to close, so they’re often more enticing than traditional offers.
  • You can close quickly: Without a lender involved in the process, you can generally close on your home purchase quickly with less paperwork.
  • No monthly payments: Since you bought a home with cash, you don’t have to make monthly mortgage payments to a lender.
  • You take over ownership right away: When you take out a mortgage, the lender technically owns the home until it’s paid off. With a cash deal, you own the home as soon as you close on it.
  • No proof of income or credit score: When you apply for a mortgage, you’re responsible for providing proof of income, bank account information, and other documents, in addition to having an acceptable credit score. By purchasing the home with cash, you’re not required to obtain these documents, prove your income, or meet other lender criteria.

Cons of Paying Cash for a House

If you can afford to buy a home with cash and eliminate the need for a mortgage, it may seem like the best choice. However, paying cash for a home does have its disadvantages, including the following:

  • Emptying your money into one asset: It’s always important to diversify your investments and if you use all your cash to buy a home, you’re tying up all your assets on one investment, which may not even pay off in the long run.
  • Decreased liquidity: When you buy a home with cash, you don’t have any liquidity in your investment. You can’t gain access to the cash you used to purchase the home quickly if you need it or if you want to invest in something else that may be more profitable.
  • No tax benefits: When you have a mortgage, you can usually deduct the interest you pay on your taxes. If you purchase your home with cash, you forfeit these home-buying tax benefits.
  • Tying up your cash: If it was a stretch for you to buy your home with cash, you may have left yourself with an empty savings account or emergency fund. When you face a medical expense or car repair bill, you may find yourself in financial trouble and applying for short-term payday loans or other risky solutions to pay these unexpected bills.
  • Less leverage to sell: If you need to sell your home but the market isn’t in your favor, you may lose money on your cash purchase. To buy another home that’s comparable, you’ll need to ensure you have enough cash saved up to make up for the difference in the market.

If you buy your first home with cash, you may also not qualify for certain grants or loans the federal government offers to first-time home buyers.

How to Buy a House in Cash

Whether you’ve found an inexpensive home that’s in foreclosure or you’re considering purchasing the rental you live in now, there are several ways to buy a home with cash. When you’re ready to make your purchase, you may be able to close on your new home using one of the following methods:

  • Wire transfer: One of the safest ways to pay with cash is by wiring the cash from your bank account to the seller’s account.
  • Cash: In most home buying transactions, a paper trail is mandatory and actual cash may not be accepted. You could be asked to change out your cash for a money order or place it in an account to transfer it.
  • Cashier’s check: You could obtain a cashier’s check from your bank and provide it to the seller at closing.
  • Personal check: A personal check may also be frowned upon at closing and the title or closing agent might request that you obtain a cashier’s check instead. This ensures the cash transfer is completed quickly and accurately.

No matter which method you choose to provide your cash, it’s important to be sure you’re making the right financial decision when paying for your home outright. By reviewing the pros and cons of paying for a house in cash, you can decide if this option is right for you and your financial future.

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