If you want to purchase a house, you can either purchase it with cash or use a mortgage. Both options have merits and disadvantages. For example, if you’re considering to take out a mortgage, you won't need as significant capital. But the drawback here is you will have to pay a large sum of interest over the purchase price. Similarly, buying a house with full cash has the following advantages and demerits.
Should You Purchase a House with Cash?
3 Advantages of Purchasing a House with Cash
1. No Need to Pay a Mortgage
Most people purchase a house with a mortgage. But when you take out a loan for purchasing a house, you will have to pay interest. For example, if you take out a $300,000 loan with a 3.5% interest rate for 30 years, you will have to pay an additional $181K in interest. However, when you purchase the house with full cash, you won’t have to pay any interest. Thus, your total purchase cost is less.
2. Sellers Prefer Cash Only Home Buyers
In a competitive market, buying a house with all cash will give you a competitive advantage over other home buyers. Because when you purchase the house with 100% cash, the transaction will be faster. Besides, the seller won’t have to worry about the financing falling out at the last-minute. All these will give you more power over the negotiation.
3. Permanent Roof Over Your Head
People who purchase a house with a mortgage or loan are always concerned about the timely mortgage payment. If they fail to pay a couple of months, at first, they will receive a notice from the bank and even if they don’t pay the interest for 90 days, the bank will consider the loan as a default loan and start the procedure of foreclosure. And when this happens, you might lose your home.
On the flip side, when you purchase a house with all cash, there is no risk of the property being taken by a third party. Once you have purchased the house, the house will always be yours.
Cons of Purchasing a House with Cash
· No Tax Deduction
No mortgage, no tax deduction. When you purchase a house with a mortgage or loan, you get a tax deduction on your total income. However, as you will be purchasing the home with full cash, you won’t be eligible for this tax deduction.
· Money is Tied Up in Your Home
When you buy a home with all cash, your money is tied up in the house. Unless you sell the house, your money is illiquid.
Conclusion
Before purchasing a house with all cash, you must consult a financial advisor who will judge your overall financial condition and give you suggestions about what will be the best for you. Besides, you should consult a tax expert to understand the implications of buying a house with all cash.
