54% of Recent First-Time Home Buyers Made a Cash Offer. Should You?

Most people who buy a home can't afford to pay for it in cash outright. That's what mortgages are for. 

But in a recent survey by Today's Homeowner, 54% of first-time home buyers made a cash offer on a home.

That number is surprising given that home prices have been so elevated. And to be fair, it's also higher than numbers reported by other sources. 

But still, it's fair to say that a large number of new home buyers sought to purchase their properties without a mortgage. The question is, does it pay for you to go that route if the option exists?

The upside of making a cash offer

Perhaps you have the option to buy a home in cash because you have a lot of money in your savings account or are sitting on an inheritance. The benefit of buying a home in cash is not having to deal with the process of getting a mortgage, which has the potential to be time-consuming and stressful.

Also, by not having a mortgage, you don't lose money to mortgage interest. And, you might be able to close on your home much sooner because you aren't waiting for a lender to finalize your paperwork.

Plus, in a tight real estate market that lacks inventory, which is what today's market looks like, being a cash buyer gives you an advantage over the competition. Sellers know full well that mortgages have the potential to fall through. So they're often more eager to work with cash buyers, knowing that the money to pay for the home is there. 

The downside of making a cash offer

When you buy a home in cash, you're generally parting with a lot of cash. But then that's cash you won't have available to you for other purposes. 

What if you empty out your savings to buy a home in cash a few years before your kids are set to start college? You might end up being unable to help them pay for an education, forcing them to rack up costly educational debt. 

Plus, when you apply a lump sum of cash to a home purchase, you lose the opportunity to invest it elsewhere. And if you tie up too much cash in a home, you might end up stuck if your situation changes, such as if you lose your job, want to change careers, or feel the need to renovate.

What's the right call?

Clearly, there are pros and cons to paying for a home in cash. Before you decide what to do, think about what you stand to gain and lose by going this route. You may also want to talk to a financial advisor to see what they say given your goals and other circumstances.

An advisor might tell you not to buy a home in cash because they think your long-term savings need a boost. Or, they might tell you that since you have a robust IRA balance, you're free to pump a few hundred thousand dollars into a home purchase. But it pays to have that conversation either way.