It’s common to take a loan for buying your house. You get approved for a mortgage, and then you start searching for your home. Although mortgage financing is widely used, if you can afford, paying cash can be the best choice. If you can pay cash for your house (whether for a small house), you can enjoy greater financial stability over the years.
The question is, does it make sense to buy a house with cash? This article will discuss that argument. First, let’s list the benefits of buying a home with cash.
Getting a housing loan has its cons. First of all, having debt doesn’t always feels good. Second, there are horror stories about the bank foreclosing on your house. Most of these stories are true. If you lose your job, become ill, or for some reason, cannot pay the mortgage; the bank won’t hesitate to foreclose your house. Now, having a home is not just about a financial statement. Homes are built of memories and dreams are perished when a family loses its home to the bank.
If you buy your home with cash, you don’t have to worry about this step. Let’s say; you have $175k in your account. If you take a mortgage, you can afford a much bigger home, costing between $300k-$450k. Even though you can buy a nicer & bigger home; I will suggest buy your home with cash. A smaller home with financial stability is better than a $300k house with a loan.
If you face financial problems, you can rest assured that your home is yours. You don’t have to worry about recessions or market turns. Prices keep going up and down but, having a home gives you a sense of stability and sometimes, it’s all that’s required in life. Think about that!
Getting a loan is one thing. Dealing with a bank is an entirely different story. It’s a joke. Banks give you a loan, once they believe, you don’t need one.
For a housing loan, you need a down payment of at least 20% and a credit score of 720. Then there is a ton of paperwork to be completed. Pass the interview and pay the closing costs. You’ll pay for the lender’s insurance, home insurance, interest rate, and so on.
The availability of cash allows you to not deal with the bank. You can skip this process which brings us to the 3rd point.
When you have cash in your hands, you don’t have to deal with banks. That means the seller doesn’t have to wait for the mortgage approval. You have negotiation power in this case. Many transactions fail at the last moment because of financing issues.
Since you have cash, you can get a discount. The seller doesn’t have to wait for mortgage approval, and he is getting a guaranteed offer. The seller can receive the funds within days. It can be a lucrative offer compared to waiting for 3-4 months. You can get the home at a 5-10% lower price which is an advantage.
When you have cash, it shows that you came to buy something and will walk away if the deal doesn’t work for you.
Buying a home requires a significant financial investment. It’s a matter of thousands of dollars. When you buy a house with cash, your money gets locked into the property, and you cannot easily access it. In case of an emergency, you can only tap into the equity of your home by selling the house or getting a HELOC.
Buying a house is a good step but establishing an emergency fund should be the priority.
With a mortgage, you can deduct the annual interest rate from your tax payments. When you pay cash, you don’t get such benefits. Although it sounds like a disadvantage, it is not one. You are not paying any interest rate to the bank, and you are paying tax — it like saying that you are not paying $10k and receiving $3k in return.
To sum it up, if you have the cash available, it can be an excellent choice to buy a house with cash. However, you have to be careful with the appraisal. Make sure that you want to keep the house for 15+ years because you’re buying that home for a stable future. Save for emergency times and then buy your house. Another good rule is to buy for less than what you can afford. If you can afford to pay $185k, think of purchasing a property within $175k. You can also negotiate a fair deal since you are paying cash and can close quickly.
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