There are many people across the country who struggle to come up with a 10% down payment required for a mortgage, but despite this, it seems that there is a very surprising trend emerging. More and more people are deciding to buy a home with cash. Is this a good idea? It certainly has its advantages, but it may not be right for everyone.
The Pros of Buying a Home with Cash
There are several advantages to buying a home with cash that you simply won’t experience if you obtain a mortgage from a bank or other lender. If you have the means to buy a home with cash, all of the following may be true:
- Sellers will want to sell to you. If you have cash in hand when you make your bid, and the seller knows it, then that seller is more likely to sell their home to you – even if someone else outbids you. Why? They’ll know that your application for a mortgage won’t be turned down.
- You might get a better price. If you’ve ever bought anything with cash, then you know how much bargaining power it gives you. The same
thing can be said for a home, particularly since the seller can obtain the money on the day the home is sold.
- There’s no mortgage hassle. Whether it’s your first mortgage or your third, obtaining a home loan from a bank is never fun. When you’re buying a home with cash, there’s no need to fill out endless paperwork or wait for your approval to get through underwriting.
- You won’t have to worry about mortgage payments. Unlike millions of Americans who wonder how they’re going to make their next mortgage payment, that will never be an issue when buying a home with cash. That home is yours, even if you lose your job.
The Potential Downfalls
Just as there are some advantages to buying a home with cash, there are a couple of things that might make you think twice.
- You’ll lose financial leverage. Buying an asset with money you’ve borrowed from a bank improves your potential return even though you’re paying interest as long as that asset increases in value. Paying with cash means you’ll get a return on the cash you paid; borrowing from a bank means you’ll get that same return, but all you’ve paid is your down payment.
- You’ll miss out on liquidity. You won’t be able to get your cash out of a real estate investment quite as quickly if you pay all cash for it. Most bank accounts are liquid, which means you can get cash when you need it, either in the form of an equity loan or second mortgage. Buying a home with cash means that you may need to wait months for your home to sell.
Buying a home with cash isn’t right for everyone, but if you plan to live in your home for quite some time, it may be a great option if you have the means to do so. If you’re purchasing that home as an investment property, a mortgage may be a better option if for no other reason than the liquidity and financial leverage it provides.