Secrets of Buying a House with Cash

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There are a few ways you might find yourself in a position where buying a house with cash is an option. You may have saved up your money for a long time, you may have come into a large sum of money through an inheritance or prize winnings, or you may have built up enough equity with another home to be in a position such that buying another house outright is possible. Whatever the reason, if you have the cash to do it, you may be wondering if purchasing a house outright is a wise decision.

Buying a Home with Cash Has Obvious Advantages

Two of the main advantages of buying a house with cash are apparent, but bear mentioning.  

  • No mortgage payments: When you pay for your house upfront, you can enjoy more spendable income each month since you will not have to make a mortgage payment. This can provide you with more financial freedom, particularly if you are on a limited income.
  • Save money on interest: Even today when interest rates are extremely low, interest paid on mortgage loans adds up to a large sum of money. If you borrowed $100,000 on a 30-year mortgage at an interest rate of 4.5% and made only the monthly required payments until the house was paid in full, you would end up paying a total of about $82,400 in interest alone. That means you are paying nearly double the asking price of your house! Buying with cash saves you this additional cost.
Buying a Home with Cash Has Some Little-Known Advantages

There are, of course, more advantages to buying a house outright, but many of these are never considered by buyers who are in the position to do so. These include:

  • Sellers love for-cash homebuyers: Everything becomes easier on the seller’s end when you can offer to pay for their house in cash. This can give you an edge if another buyer is interested in the property, or if you want to try to negotiate a better price. Sellers feel more comfortable with for-cash buyers because they do not have to worry about last-minute problems with loan funding, nor are there a lot of contingencies involved. For a seller who is anxious to close the deal, this is a very good thing.
  • You can save money on closing costs:  Those who purchase their homes with cash can avoid many of the expenses typically associated with closing on a mortgage. These include loan origination fees, costs associated with having the property appraised, and various closing costs typically required by lenders. This can equate to thousands of dollars in savings.
  • You can close on your new home faster: If are buying your home with a mortgage, you typically have to wait between 30 and 45 days for the paperwork to finalize before you can close on the purchase. If you are buying with cash, the transaction can take place in about one week.
  • It is easier to get home equity loans: When you apply for a home equity loan line of credit, your financial institution determines how much you are allowed to borrow based on how much equity you have built up in your home. Those who only recently purchased their house through a traditional mortgage may have a difficult time getting a substantial loan if they need one. If you have purchased your house with cash, you will be able to borrow up to about 80 percent of its value if you are faced with an emergency or need the money for home improvements or other projects.
  • Fluctuations in the housing market will not affect you: Recent fluctuations in the housing market left many homeowners upside down on their mortgage payments, meaning they owe more for their house than it is worth. When you purchase your home with cash, these fluctuations, which typically right themselves after a number of years, will be far easier for you to weather.
How to Know if Buying a House with Cash Is Right for You

When it comes to the decision about whether or not to invest a large sum of money in buying a house with cash, there are many things you should take into consideration. Although there are definitely financial advantages to doing this, there are some other considerations to keep in mind.

When you have a mortgage, your mortgage company can handle payment of county, school and other property-related taxes. They do this by collecting additional money with each mortgage payment and putting it into an escrow account. When taxes become due, the mortgage company pays them from this account. For many homeowners, this is very convenient. If you own your house outright, you will be responsible for making tax payments on your own so you must remember to set the money aside for them and must be sure that they are paid on time.

Also, while you will be saving a lot of money on interest by buying a house with cash, this interest is tax-deductible for those who itemize their deductions. Because this can mean the difference between using the standard deduction and itemizing, it may have significant tax implications for you, depending on your particular situation. It is a good idea to speak with a financial advisor or tax professional for advice before making such a large financial decision.

There are More Ways to Save Money

Those who purchase their homes with a mortgage are required to carry homeowners insurance and, at times, flood or earthquake insurance. When you purchase with cash, however, this coverage is optional. Of course, once you have paid such a large sum of money for the house, you will want to protect your investment, so insurance coverage is extremely important.

You can save money on your insurance costs when you work with an independent insurance agent in the Trusted Choice® network because your agent can help you determine how much coverage you need and will provide you with a number quotes from different companies. That way, you can be sure you are getting your coverage at a great rate. When you are ready to buy your house, whether with cash or through a mortgage, be sure to contact us.

meg stefanac blogger

About the author: Financial blogger and business owner, Meg Stefanac, has more than 15 years experience working in the financial services industry and enjoys helping individuals make solid financial decisions. Meg has extensive experience writing about insurance and finances and is a key contributor to TrustedChoice.com.

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