Paying cash for a house sometimes allows buyers to close a deal on a property quickly. Cash payments often work well for New York investors and “house flippers,” but traditional buyers might also intend to close a deal this way. Cash purchases have their benefits, but drawbacks could also exist. Understanding the pros and cons of paying cash for real estate can result in a more informed decision.
The benefits of paying cash
“Paying cash” usually involves handing the seller a certified check for the purchase. Buyers with the necessary funds could produce such a check and never deal with a mortgage company. Mortgage companies would likely require an assessment and inspection, which may lead to delays. Slow final approvals from mortgage companies could result in closing postponements, provided that the seller agrees to postpone.
Monthly mortgage payments also include interest, which adds to the purchase price, and the buyer doesn’t own the home until paying off the mortgage balance. In addition, closing might not only move faster, but it could be less expensive when there’s no mortgage company to deal with. Any money saved on the purchase factors into the gained equity.
Concerns about a cash purchase
While paying cash for a home has some upsides, the process comes with certain concerns. The most apparent would be the decrease in liquid assets. Purchasing a house with a significant amount of someone’s cash reserves could leave a person with little liquidity.
Paying cash won’t eliminate all costs and fees associated with residential real estate transactions. A dramatic reduction in liquidity now means fewer cash reserves to cover insurance, taxes, maintenance, and utilities. While some people may have more than enough cash available, not everyone does.
A home is an investment, but putting enormous sums of cash into one investment vehicle might prove worrisome. Funds going to the house cannot go to stocks or other assets capable of delivering a significant return.
Each buyer’s situation is different. Weighing the positives and negatives of cash buying before making any decisions is wise.