If high interest rates have you dreaming about buying a house with cash, you aren’t alone. Although this is a growing trend, most people still finance their homes. According to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers, 26% of homeowners paid for their home in cash last year, an all-time high. That still means 74% of homeowners went the traditional route of taking out a mortgage.
If you think you can swing a cash purchase, should you? Here’s what you should consider when contemplating buying a house with cash.
[Read: Buying a Fixer-Upper vs. Move-in Ready: Which Is Better?]
The Pros: Why Buying a House With Cash Is a Great Idea
You Own the House Right Away
This is obviously one of the best things about buying a house with cash. You own it, right off the bat. You have no mortgage payment. Life is good. As Lindsey Harn, a real estate agent with Christie’s International Real Estate in San Luis Obispo, California, says: “You own the home, free and clear.”
By skipping the mortgage now, you can rest assured that any increase in value on a property directly benefits you when it comes time to sell. With no mortgage to pay off, 100% of the profits from the sale go into your wallet, making it easy to purchase another home with cash or finance a larger purchase with plenty of cash on hand.
You’ll Save a Lot of Money
In January 2021, mortgage interest rates were 2.65%, and by October 2023, they were 7.79%. More recently, mortgage rates have hovered just under 7%.
When interest rates were historically low, borrowing was cheap. But now, “with current mortgage rates around 7%, mortgages have become less attractive,” says Jay Zigmont, a certified financial planner and CEO of Childfree Wealth, a life and financial planning firm in Mount Juliet, Tennessee.
“If you buy a house with a mortgage and invest your cash in the market, on average you are unlikely to beat a 7% return after taxes,” Zigmont says. He says homeowners who can skip a mortgage are essentially getting “a risk-free, tax-free return of the interest.”
He adds: “If I could invest my money and get a guaranteed 7% tax-free return, I’d do that all day.”
It’s also important to remember that by financing, you take on additional costs with loan origination fees and the interest paid over time, so the net cost of buying your home is less when paid for in cash.
By paying cash, you won’t have to make monthly payments to a lender, and when the house increases in value, that directly boosts your personal wealth.
Sellers Love All-Cash Offers
Especially if you’re looking to buy an in-demand house getting a lot of interest, an all-cash offer can provide the needed leg up to get the seller to consider your offer more seriously than others. You may not even be the highest bidder, but the seller knows a cash offer will make the closing process easier.
“I’ve had sellers take cash offers over higher financed offers because, for them, it meant a guaranteed, problem-free closing,” says Brett Johnson, a real estate investor, licensed real estate agent and owner of New Era Home Buyers in Denver.
Generally, if you’re competing against another buyer, an all-cash offer puts you in a stronger position to negotiate, Johnson says. “Cash offers are appealing for sellers because they remove financing risk and provide more certainty of close,” he says.
Harn agrees. “It’s typically considered an easier transaction, so if you are competing with multiple offers, the seller may be more likely to take your cash offer as a sure thing, versus an offer contingent upon the buyer obtaining a loan and getting funding,” she says.
Cash Speeds Up the Closing Process
Part of the attractiveness of your all-cash offer is the elimination of the waiting period often imposed by mortgage lenders, filled with due diligence and underwriting to receive and approve the loan.
With a cash offer, you have the freedom to choose which aspects of the due diligence process are most important, rather than those that are required by a lender. For example, you could choose to forgo an appraisal while still having the inspection done.
While your speedier homebuyer timeline can be a powerful tool in negotiations for a purchase, don’t get carried away by neglecting aspects of due diligence that could reveal serious problems with the property in question.
“You can usually close sooner,” says Rose Krieger, a Spokane, Washington-based senior home loan specialist with Churchill Mortgage. “Instead of following the schedule set by a lender, items like the home inspection and appraisal can be completed at your discretion.”
You’re doing this on your own timetable and not a lender’s. That can smooth the process for you and the seller.
In some areas of the country that have been battered by climate change, you may find homes for sale that are uninsurable, Zigmont says. “If they are uninsurable because of previous claims, the only option is to buy it with cash. We are likely to see an increase in uninsurable homes in areas like Florida and California,” Zigmont says.
Whether you really want to pay cash for a house you can’t insure, however, is something to consider.
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The Cons: Reasons Not to Buy a House With Cash
You May Be More Prone to Making Mistakes
It may sound freeing to hear you don’t have to get your house appraised or looked over by a home inspector or get homeowners insurance, but that doesn’t mean you shouldn’t do those things.
“While a home inspection and appraisal are not necessary with a cash purchase, it is still recommended to have both of them done,” Krieger says. She also says cash buyers need to have a full picture of the true value of the home and any issues you might inherit.
“The biggest mistake cash buyers make is assuming they don’t need due diligence,” Johnson says. “Just because there are no lender requirements, don’t forgo property inspections or title research. I’ve witnessed buyers rush into deals without checking liens, zoning issues or structural problems, only to face costly surprises later.”
You Could Be House Rich and Cash Poor
“Another mistake individuals make is putting too much equity into a house and not retaining enough liquidity,” Johnson says. “Real estate isn’t liquid, and I’ve seen investors who regretted not retaining enough working capital for when unexpected expenses came up.”
It’s not wise to purchase a home with cash if you have just enough to pay for it. It’s a good idea to maintain an emergency fund that will sustain you for at least a few months if you were to lose your income — covering things like car maintenance, unexpected medical costs and your regular grocery and utility costs for up to six months. You’ll also want to have cash on hand for any number of unexpected house needs, from a new roof to a furnace that’s on its last legs.
“While owning a home free and clear is great, if you have to withdraw from your retirement or sell stocks and pay taxes, getting a small loan may be better than creating a tax implication for yourself,” Harn says.
In general, after you pay for a house, you need to think about a few other future expenses that may be on the agenda:
— Furnishing and maintaining your home. If you just bought a house with cash, you probably have enough money to buy living room furniture, a bedroom set, a lawn mower or whatever you’re going to need. Presumably, with no mortgage payment, you’ll have money available every month to go toward stocking your pantry and updating your wardrobe, but think about whether such a significant cash outlay will hurt your quality of life.
— Do you have other significant expenses coming up? If you have children to put through college soon, a wedding to pay for or other expenses coming up, like buying a new car, it could be better to put down a sizable downpayment, allocate some of the cash for upcoming expenses and borrow the rest.
— Closing costs. “When paying with cash, there are still closing costs associated with the purchase via title and closing fees,” Krieger says. “It’s also critical to remember that you will be responsible for making your homeowner’s insurance and property tax payments on your own versus having an escrow set up for you by a lender.”
[Read: What to Know About Buying a Multigenerational Home]
Should You Buy a House With Cash?
It depends. Everybody’s financial situation is different. But if you have enough money saved to purchase a house outright and the purchase won’t drain your savings, a cash purchase could be a good idea. It may be worth your time to schedule a meeting with a financial advisor to help you run through your own personal pros and cons.
As Johnson puts it, “A cash purchase can be a wonderful tool, but use the same amount of caution on a cash purchase as on a purchase with financing.”
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Should You Buy a House With Cash? originally appeared on usnews.com
Update 03/27/25: This story was published at an earlier date and has been updated with new information.
