Most people looking to buy a home will finance their purchase through a mortgage. However, some people have enough liquidity that they can afford to pay cash. Paying cash for your home will save you a lot of money in interest payments. Besides this, paying cash for your home will also expedite the time it takes to close. But there are a lot of considerations when contemplating purchasing a home outright versus financing it. Read on to find out the pros and cons of buying a home with cash.
Can you buy a house with cash?
Provided you have cash at the ready then it is possible to pay cash when buying a home. Paying cash for your home has very distinct benefits as compared to the more conventional route of taking out a mortgage. Here are some of the benefits of buying a home for cash.
The benefits of buying a home with cash
You can avoid interest
To start with, paying cash when buying a home eliminates the need to pay interest on a home loan. A mortgage home loan comes with interest that you have to pay over the life of the loan. As such, when you pay cash for a home then you avoid incurring this cost. Moreover, there are mortgage origination fees, appraisal fee, document fees and other fees charged by lenders to assess a home. In addition, paying cash for a home helps you avoid any closing costs.
More attractive offer
Paying cash when buying a home is also more attractive to sellers. This is because an offer that comes without any contingencies is more appealing. In a competitive market, a cash offer appears relatively attractive compared to buyers who are still waiting to finalise their mortgage. This means a seller is apt to take a cash offer over other offers because they don’t have to worry about a buyer backing out due to denied finances. Also, a cash home purchase also has the flexibility of closing faster. The advantages of buying a home with cash boil down to ease and simplicity.
The setbacks of buying a home with cash
Tied up money
Firstly, buying a home with cash ties up all your money in a single asset. While real estate is a solid investment, if the market makes a tun for the worse you could be in a financial bind. Most financial advisers recommend that you diversify your investment portfolio and assets. While you may invest in real estate, also consider other investment options to help mitigate the risk of a poorly performing real estate market. If all your money is tied up in real estate then you do not have the flexibility to take advantage of other lucrative investment vehicles.
Buying a home with cash also reduces your liquidity. Simply put, liquidity refers to the amount of money you can quickly mobilise. This means that if all your money is tied up in a house then you cannot access it quickly. To access the money that is tied up in your home ou would have to sell the property which can be a lengthy process.