Should You Buy a House With Cash? Here's What to Consider

Should You Buy a House With Cash? Here's What to Consider

Terri Williams   Fri, June 17, 2022

In a hyper-competitive housing market, prospective buyers are pulling out all the stops to close bids on new homes—and for some, the winning tactic is a cash offer. In February 2022, 25 percent of home offers were all-cash, according to data from the National Association of Realtors, and in 2021, all-cash offers were more than four times as likely to win a bidding war.

With these chances, it's no surprise that prospective homebuyers have been going out of their way to make these offers. "Our quarterly report reveals that 57 percent of agents have seen buyers leverage their own retirement or securities funds to pay cash for a home," says Laura Tonelli, home trends expert at HomeLight, a San Francisco-based real estate referral company. In addition, she says that 49 percent of real estate agents polled have seen buyers take out a home equity loan or home equity line of credit for this purpose, and 38 percent of agents have seen buyers get short-term loans from friends or family.

So, you may have enough money to consider buying a house with cash. But is that a wise decision?

"Paying cash for a home as opposed to financing all or part of it is a big decision, and really should be made with the help of an accountant and/or a financial advisor," advises Bill Golden, realtor and associate broker at RE/MAX Around Atlanta. "Tax consequences need to be considered, both for the current situation and as a long-term investment—and every situation is different."

Below, learn all the factors you should weigh if you're considering paying cash for a house.

Long-Term Savings On The Cost Of The House

If your goal is to save money on the overall cost of the home, paying cash definitely provides an advantage. "If you can buy a home all-cash, you are spending less to purchase the same asset," says Ryan Serhant, founder and CEO of SERHANT. "By the time you finish paying off a mortgage, the home is going to cost you more than the initial purchase price because of the interest."

Serhant's view is shared by Brielle Mabrey, Washington, D.C.-based personal finance coach and founder of the financial empowerment firm Wisdom Then Wealth. "Two words provide significant motivation to buy a house with cash if you can do so: amortization schedule." This refers to the amount of principal and interest you'll pay over the term of the loan.

"For example, on a $240,000 mortgage at a 3.5 percent fixed interest rate with 360 monthly payments, you will pay $147,974 in interest on a standard payment schedule," she explains. "The total paid will be $387,974, with you paying 61.7 percent of your loan amount in interest."

Interest Rates

On the other hand, interest rates (although rising) are still pretty low. "Home mortgages tend to be one of the most affordable ways that individuals can access finance capital," says Aaron Dorn, chairman, president, and CEO of Studio Bank in Nashville, TN. "Many mortgage rates are actually lower than national inflation rates, which can further compound the long-term value of having a mortgage."

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