The Pros, Cons, and Process of Buying a Home All-Cash

In the initial four months of 2021, nearly 30% of home buyers purchased homes with all cash, which means that they weren’t required to apply for a loan from a bank or similar mortgage provider. Regardless of why you want to purchase a home, buying a home with cash is an option you can take advantage of.

If you want to purchase a home with cash to avoid making a high monthly payment or to make sure that your bid is appealing to the seller, an all-cash offer may be the way to go and is probably only going to get more popular. Here’s a more in-depth guide on the pros and cons of buying a home all-cash as well as what this process entails.

How to Purchase a Home with Cash

When you buy a home with cash, you can obtain these funds from previous investments, savings accounts, or proceeds from the sale of another home or property you owned. Paying in cash allows you to avoid paying interest and may help you reduce your closing costs. If your offer to the seller is accepted, the next step in the home-buying process involves providing an earnest money deposit and making sure that a title company performs an extensive title search.

Once you’ve taken one last tour of the property, you can proceed to the closing of the sale, which is when you’ll be tasked with signing documents that finalize the transfer of the property. Before closing, you also have the opportunity to request a home inspection and appraisal.

Even though all-cash buyers aren’t required to provide final information to lenders, this information will still need to submitted to a financial institution to show that you can afford the purchase. While some cash buyers forego inspections, title insurance, and other details, it’s essential that you do your due diligence before the sale closes if you want to be wholly satisfied with your purchase.

Reasons to Buy a Home with Cash

There are many reasons that you could choose to purchase a home with cash. Mortgages are always going to be more expensive depending on the interest rate that’s affixed to the loan. Let’s say that you obtain a mortgage valued at $300,000 with a 3.25% interest rate that you pay back over a period of 30 years.

Along with the $300,000 principal, you’ll also be required to pay another $170,000 in interest payments over the duration of the loan. You can avoid paying interest entirely by purchasing a home with cash. Buying a property with cash also means that your monthly payments will be substantially reduced and should only include expenses like property taxes and homeowners insurance.

Advantages of Buying a Home with Cash

There are many advantages of purchasing a home with cash. For one, cash buyers are more appealing to many sellers and may help you obtain your dream home in a competitive market. Sellers enjoy working with all-cash buyers because there’s no longer a possibility that financing will fall through right at the end of the closing process.

If you have enough cash at your disposal, purchasing a home with cash means that you’ll have no mortgage payments, fees, or interest payments. You also get to avoid the loan origination process. When looking specifically at closing costs, you’ll no longer be tasked with paying application fees, lender fees, discount points, or origination fees, which should substantially reduce costs.

Likely the top benefit of buying a home with cash is that the property is yours entirely. When you obtain a loan, the lender effectively has control of your home in the event that you miss one or more monthly payments. Having total ownership of the home should give you more confidence that you won’t lose your home.

Disadvantages of Buying a Home with Cash

The main issues with buying a home solely with cash include:

  • Your money is 100% tied into the home, which makes this a somewhat illiquid investment
  • You can’t take advantage of mortgage tax deductions that are available when paying interest
  • You’ll still need to pay for property taxes, utilities, and homeowner’s insurance

Purchasing a home with cash means that you can avoid a lengthy closing process while also being able to provide the seller with a more appealing offer than other buyers can provide. However, you should be certain that you have access to the necessary funds before making such an offer.