Should You Buy a House in Cash in 2022? Pros and Cons

With the low inventory seen lately in the housing market, everyone is trying to find a way to get ahead. Competition is stronger than ever, and the limited amount of homes available makes the prices rise up and securing a deal more difficult.

One of the ways to gain an edge over the competition is by buying a home with cash. This tends to come off as a strong offer and helps speed up the purchase process. As such, it is understandable if you are considering doing so for your next home purchase.

To put things into perspective, 87% of people finance their home purchase in 2021, which means a cash purchase would give you a significant advantage.

But is cash the right choice for you? To help you figure things out, we have compiled a list of the benefits and drawbacks of purchasing a home with cash.

4 Good Reasons to Buy a House with Cash

Buying a home with cash gives you a lot more freedom and power during the purchase process, so it is easy to see why someone would want to do so. But these benefits extend beyond the obvious.

When it comes to purchasing a home with cash, these are four reasons why you should do so:

1. It will speed up the sale process
2. It will make your offer stronger
3. You won’t have to worry about a mortgage
4. It will keep you out of debt

To understand each point better, let’s take a look at each of them:

1. It Will Speed Up the Sale Process

When you ask for a mortgage from a lender, there is a lengthy process of research and verification to determine whether you are eligible or not. This can significantly delay the purchase of a new home, and even lose you an offer for the house if someone else steps in during your mortgage verification.

By buying the home in cash, you skip this entire process and can reduce the sale from weeks to a few days. Not only that, by opting to buy the home in cash you get to control how long the process takes and can focus the time on other home inspections that are more beneficial to you instead.

2. It Will Make Your Offer Stronger

An all-cash offer can give you the edge you need to encourage the seller to take your offer more seriously than others, especially in a market where buying a home is particularly competitive. Even if you aren't the highest bidder, the seller understands that a cash offer will make the closing process go more smoothly.

3. You Won’t Have to Worry About a Mortgage

By foregoing a mortgage today, you may rest comfortably that any gain in property value will benefit you directly when it comes time to sell. Because you don't have a mortgage to pay off, all of the proceeds from the sale go straight into your pocket, making it simple to buy another property with cash or finance a larger purchase with cash on hand.

4. It Will Keep You Out of Debt

Paying cash means that you don’t have to worry about a mortgage. This means no more monthly payments, loan fees, interest, and the likes of these. Furthermore, you immediately increase your financial standing with the added value of the home.

Even if you’d rather buy the home with a mortgage, in the end, you can still use the cash offer as a way to get ahead in negotiations.

Also, if you are being offered mortgage rates that aren’t workable or rates that are too high, buying a home with cash allows you to skip all those considerations. No interest is a better option than the lowest interest rate, as you will end up winning significantly in the long run just by not having to pay interest on the mortgage.

4 Reasons Not to Buy a House with Cash

If you have the cash at hand, buying a home outright might be extremely tempting. However, there are actually some scenarios in which this wouldn’t be beneficial to you, like if this would drain you of your savings.

To help you make the right decision, here are four reasons why you might be better off getting a mortgage rather than buying a house with cash:

1. You could get a great tax break
2. It gives you more financial flexibility
3. You could invest the money instead
4. A mortgage might be a better option

Let’s take a deeper look at each of them:

1. You Could Get a Great Tax Break

A tax deduction on the interest paid to the lender is available to all homeowners who have a mortgage.

However, only a small percentage of homeowners are eligible for this benefit. The mortgage interest tax deduction has been limited to interest paid on the first $750,000 in mortgage debt since federal tax reform was implemented at the end of 2017.

Furthermore, beginning in 2018, improvements to the standard deduction reduced the number of persons who needed to file itemized tax returns, which is where the mortgage interest deduction would be claimed. You don't get a separate mortgage interest deduction if you use the standard deduction, which the great majority of homeowners do.

2. It Gives You More Financial Flexibility

If you are using all of your savings to buy the home, it could put you in a difficult situation, later on, should another need or emergency arise. By getting a mortgage instead of buying the home with cash, you can keep the cash around as a cushion. You could repurpose the cash, use it towards repairs or renovations for the new home, or just save it for a rainy day. It will give you more flexibility when it comes to your financial stability.

3. You Could Invest the Money Instead

You're probably sitting on a large sum of money if you have enough cash to buy a house outright. However, the choice isn't always between buying a home outright and keeping money in the bank. Consider other investment options that could provide a better return than the interest you'll save by paying cash.

Consider investing in equities, mutual funds, or a personal business that you believe would generate higher profits.

4. A Mortgage Might Be a Better Option

One of the reasons why people consider buying a home with cash instead of financing is to get away from a mortgage, but if you have the money to purchase a home you could get a mortgage with very good interest rates and conditions. You could even skip the insurance required for the mortgage if you put down a 20% down payment or higher. This would allow you to keep a lot of liquidity and still get a reasonable mortgage rate.

Buying A Home with Cash - FAQs

Are cash purchases always better?

This will ultimately depend on your particular situation. Paying with cash offers the benefit of speeding up the purchase process, keeping you out of a mortgage, and making you the owner of the property right away.

However, if you don’t have the necessary liquidity for the purchase, or will use all your savings to do so, this could put you in a difficult position. Only purchase a house in cash if your finances are squared out.

How much time does a home purchase take if I use cash?

Buying a house in cash significantly speeds up the purchase process. You no longer have to wait for a loan or mortgage to get approved and can easily close a sale in a matter of days. But you shouldn’t let this rush your process. You should still perform an inspection of the house and speak to an expert to make sure you are not overpaying on it.

What costs and fees do I look at if I pay in cash?

Most of the closing costs are optional, and if you are paying in cash you don’t need to consider loan origination fees or a down payment, so you skip most of the other closing fees. However, you should still cover a title search, home inspection, and survey, and pay for title insurance to be protected.

Conclusion

If you are interested in buying a new home, this guide should help you figure out whether buying it cash is something that makes sense for you. While there are many benefits to doing so, there are other things you need to consider that might make it not be the best for your particular situation, such as tax breaks.

After you’ve finalized your decision on how you’ll purchase your new home, all that is left is to move there. And in that area, we got just the team for you. Contact Three Movers for all your moving and shipping needs and you won’t regret it. We will even give you a free consultation.