15 Pros and Cons of Buying a Home in Cash

These days, home prices are sky-high due to limited inventory. And with mortgage rates on the rise, it's becoming more expensive than ever to buy a home. But what if you don't need a mortgage? If you have ample cash reserves, you may be able to skip the home loan altogether. But is paying cash for a home a good idea? Here are the benefits and drawbacks to consider.

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When you're reliant on a mortgage, you have to wait for that loan to get approved and close. When you buy a home in cash, you can close much sooner, which gives you more flexibility.

ALSO READ: What Is a Mortgage?

Mortgage lenders make money by collecting interest. If you don't take out a mortgage, you won't spend money on interest as so many homeowners do. That could amount to a lot of savings.

Sometimes, sellers will work with cash buyers and give them a modest discount in exchange for a quick closing. Paying cash could, therefore, mean snagging a slightly lower purchase price.

Because housing inventory is so low these days, buyers are frequently landing in bidding wars. Offering to pay cash for a home is a great way to beat the competition.

ALSO READ: 3 Bidding War Strategies to Use in Today's Housing Market

Some people don't like the idea of debt -- even healthy debt, which is what a mortgage is generally considered. If you're anti-debt, then paying cash for a home means not having to deal with the stress of repaying a loan.

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If you buy a home in cash, you'll have 100% equity in it from the start. That gives you a host of options, such as borrowing against your home equity when you want or need to.

ALSO READ: Why Home Equity Loans Beat HELOCs in 2022

When you sign a mortgage, you're forced to pay closing costs on your loan, and those can really add up. If you buy a home in cash, closing costs won't be part of the equation.

Mortgage borrowers who don't put down 20% of a home's purchase price get stuck paying private mortgage insurance, a costly premium that makes homeownership more expensive. If you don't have to bother with a mortgage, private mortgage insurance won't be an issue.

ALSO READ: When Can I Stop Paying For Mortgage Insurance?

Retirees often end up living on a fixed income and, as such, want as few recurring bills as possible. If you're buying a home to live in during retirement, not having a mortgage payment could give you more financial flexibility.

If you empty out too much of your savings to purchase a home in cash, you might run into problems if a need for money arises. If you're going to pay cash for a home, make sure to leave yourself with enough money to cover things like repairs and non-home-related emergencies.

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Some investments, like stocks, are very easy to convert to cash. Homes don't fall into that category. It can take months to sell a home. So, if you pay for one in cash, you'll be tying up a lot of money in an investment that's not very liquid at all.

ALSO READ: What Is Liquidity?

The more money you put into a home, the less you'll have for other investments. That could mean losing out on returns that would otherwise make it easier to attain your long-term goals.

When you take out a mortgage, the interest you pay on it can serve as a nice tax break. If you buy a home in cash, you won't have access to that write-off.

ALSO READ: The 5 Biggest Tax Breaks for Parents in 2022

You may be motivated to buy a home in cash to avoid dealing with monthly mortgage payments. But you'll still have recurring costs to grapple with as a homeowner, like property taxes, insurance, maintenance, and HOA fees, if applicable. Adding a mortgage payment into the mix may not change your financial picture all that much.

Some sellers will offer a discount for a cash offer on a home, but that's not guaranteed to happen. You could end up paying cash but getting stuck with the same price a buyer with a mortgage would get.

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Paying cash for a home is clearly a mixed bag. Consider the pros and cons carefully before making your next offer.

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