Buying a house generally comes with a mortgage, one that lasts decades. Over that time, the average homeowner pays thousands in interest payments. Surely there has to be a better, money-saving way to do things.
For some, the belief is that paying cash is the best option. After all, no mortgage payments means no interest payments, right? Moreover, buying a house with cash can give you an edge in a very competitive market. But there are downsides to be aware of.
The Pros of Buying with Cash
Paying with cash has a few distinct advantages over the traditional mortgage route. For one, the closing process is greatly improved. Not only is it faster – closing can take months through a traditional mortgage – it also generally yields less expensive results.
The biggest selling point is that there are no mortgage payments and no interest. Paying up front with cash can have potentially huge long-term savings implications. Even paying the asking price on a house with cash means saving thousands in interest over the life of the loan.
Finally, it gives the buyer an edge. With financing, there is a chance that something could fall through. A cash offer is solid and real, something the seller can use immediately.
The Cons of Buying with Cash
For one, it is a huge undertaking. Having that much money available usually reduces liquidity and ties one up financially. Moreover, there is no mortgage interest tax deduction to be had and there is still the need to pay for insurance and property taxes.
Perhaps the biggest detraction for buying with cash is what that money could be doing for your investment portfolio. Taking out that much cash means not having it available to potentially yield higher returns. In a hot market, that can be a major windfall missed by being tied up in a real estate purchase.
Ultimately, it all comes down to the financial situation of the buyer. Since very few people can afford to buy in cash, there are potentially huge, money-saving advantages to be had.