In today’s market, where interest rates are high, you might be tempted to skip the financing and buy the house outright. Making an all-cash offer has always been a competitive advantage, but now that mortgage rates are at their highest levels in 20 years, there’s another: It now costs more to borrow money. If you pay for the house out of your own money, you won’t have to make mortgage payments every month, and you won’t have to pay extra money for interest.
Can you pay cash for a house?
Yes, you can buy a house with cash, and it’s perfectly legal. If someone is selling a home for $250,000, for example, and you have that much cash on hand, there’s no reason why you couldn’t offer to write them a check right then and there or just give them a bunch of cash. (You could do this in theory, but it’s not likely because you would have to report such large cash transactions to the IRS.)
Even so, buying a home with cash doesn’t mean you have to have the money sitting in a bank account. It just means that you’re paying the agreed-upon price in full out of your pocket. Instead of getting a loan, you use your own money, such as savings, money from the sale of investments, money from your retirement account, or money from other people. In short, you are not taking out a loan to buy the house.
Why you should pay cash for a house:
All-cash bids are a competitive edge because sellers like them. With an offer that depends on getting financing, there’s always a chance that the loan will fail to go through. This makes cash offers more appealing, which gives your bid an edge over those of other people.
- Purchase price is lower: Since cash offers are more appealing than ones that require financing, you can win a home with a lower offer. Sellers are willing to negotiate because they think your bid is more likely to be accepted.
- No risk: If your credit is bad or your income isn’t steady, you might not be able to get a mortgage in the first place. You don’t have to worry about getting a loan if you have an offer of cash.
- Lower closing costs and faster closing: Getting a mortgage comes with a lot of closing costs and delays. Skipping the loan process speeds up and saves money on the closing. This is another reason why sellers like cash buyers. If you pay for your home in full, you don’t have to worry about interest rates going up or mortgage bills coming due every month.
- Ownership right away: If you pay for a house in full, you own it right away. That means there is no risk of a lender taking your home away. You have 100% equity in the house, so it goes right into your pile of assets.
The bottom line on paying cash for a home
When interest rates are low, financing a home purchase is often a good idea. But when interest rates are high, the benefit of financing goes away. Along with saving money, buying a home with cash can speed up the closing process and make your offer more attractive to sellers, especially in a hot seller’s market. And you own your home outright right away, which isn’t the worst idea in the world.
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