The processing of buying a house with cash is mostly the same as buying a home with a mortgage, minus the hassle of applying and getting approved for a loan. As dreamy as it sounds, there are as many drawbacks as there are advantages to the cash-only approach. So how do you decide if buying a house with cash is for you? We’re here to help!
Cash vs. Mortgage
There is a lot to consider when deciding whether to pay cash outright or finance your house with a mortgage. Paying with cash eliminates all interest payments on a loan and many other fees. Mortgages with a down payment of twenty percent and a low-interest rate (often in the single digits) allow for investments without draining cash reserves. It is essential to weigh the pros and cons of buying a house with cash to determine if it is the smartest choice for your financial health.
Benefits of buying a house with cash
You won’t face the inconveniences that come with taking out a mortgage. It is a long and complicated process to apply for a loan, with the possibility of being completely turned down. Pay with cash and the process is completely simplified. Find a house, make an offer, make a deal, get an appraisal, and close.
If you’re paying with cash, you’re automatically a more attractive buyer. It gives you an edge, especially in competitive markets where inventory is tight, and bidders are ready to go to war. Not only are you a more attractive buyer, but you’re also in the position to score a deal. Ever heard of the time value of money? The idea is that money is worth more in the present time versus the same amount of money in the future because of its potential earning capacity. Sellers who are looking to invest the earnings will be very interested in your cash deal.
Bonus: When you don’t have a mortgage, you’ll never lose a night of sleep because you can’t afford the payments. There is an enormous sense of satisfaction and peace of mind you will find in owning your house outright.
Cons of buying a house with cash
There are many benefits to paying out of pocket for a home, so why aren’t more people doing it? I’m sure you can guess the answer--they just don’t have that kind of money in the bank. Even if they do, paying for a home in cash isn’t the best option for everyone. It is not commendable if doing so will drain your retirement and emergency funds, or if you have high-interest debt.
The cash-only approach limits your ability to add diversification and build your investment portfolio. Diversification is important because it can help manage risk in your investments and creates a passive income stream. Even with a steady salary and no mortgage payment, it could be impossible to think of buying more land or another house outright.
Selling a house could be a problem if you stretched a lot financially to buy it. If you decide to sell, you first need to make sure you have enough cash reserves for a new down payment, and there is much pressure not to lose money on the sale.
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