Buying a house with cash: pros and cons
When buying a house, there are two different ways you can go about paying for it. You can either take out a mortgage where you pay a deposit and the bank lends you the rest of the money, or you can buy the house outright with cash, and therefore won’t need a loan.
Can you buy a house with cash?
You absolutely can buy a house with cash, providing you have the funds upfront to hand over to the seller. But like anything, it comes with its own advantages and disadvantages. We’re going to run through the pros and cons of buying a house with cash, so let’s start off with the pros.
What are the benefits of buying a house with cash?
More reliable buyer
If you already have the money to buy the house upfront, it means there’s less room for things to go wrong. For instance, you won’t have to pass any affordability checks from the lender, you won’t be caught up in a chain, have to wait for valuations to be carried out, or for funds to be released etc. All of these things make you a more attractive buyer.
Less stressful
As there is less room for things to go wrong, the sale is pretty much guaranteed to go ahead. If you’re the seller, this means you don’t have to worry about things such as your buyer getting their mortgage approved.
Quicker process
Getting a mortgage can take time. You have to wait to go through affordability checks, then your mortgage offer has to be approved before the funds are released. Cutting out this part of the process means that a cash buyer should be ready to move more quickly. The only thing you’ll have to wait for is the legal checks and any surveys (if you decide to have a survey).
More security
As you’re paying for the house outright, you don’t have to worry about being able to afford your monthly mortgage repayments. Even if the worst were to happen and you became unemployed, you’d be able to rest assured knowing that you still have a roof over your head.
No interest
With any mortgage, the lender will charge you interest on the amount of money you’re borrowing. However, if you’re a cash buyer then you won’t have to pay any interest at all. You won’t have to pay any other charges either, such as early repayment charges (ERC).
What are the disadvantages of buying a house with cash?
Overstretching yourself
Finding the money to buy a house outright is quite an achievement, however, you need to be careful that in doing so, you aren’t tightening the purse strings too much. You need to make sure that after you’ve paid for the house, you still have enough money for the running costs e.g. utility and food bills.
Even though you won’t have to worry about paying the mortgage repayments, if you were unable to work due to illness, or got made redundant, you need to ask yourself the question, would I still be able to afford the running costs of the house? If the answer is, I’m not sure, then it’s worth getting
All in one asset
Another disadvantage of buying a house with cash is that it can tie up a large amount of your wealth in one asset, making it difficult to diversify your portfolio. If you have a significant amount of cash to buy a house outright, it may be tempting to put all of your eggs in one basket, so to speak. However, this strategy can be risky as it puts you at a higher risk of losing all of your money if the value of the house were to decline rapidly.
Diversifying your investments by spreading your wealth across a range of assets, such as stocks, bonds, and real estate, can help to mitigate this risk. By doing so, you’ll be less exposed to any single asset class or market downturn. If you’re considering buying a house with cash, it’s important to think about how it will impact your overall financial situation and whether you’ll still be able to achieve your long-term financial goals.
Common questions about buying a house with cash
There are several advantages of buying a house with cash, including not having to worry about a mortgage payment, avoiding the potential for interest rate hikes, and having more negotiating power with the seller.
One disadvantage of buying a house with cash is that it can significantly deplete your savings and potentially leave you without a financial safety net. Additionally, tying up a large amount of cash in a property can limit your investment options and liquidity.
Before considering purchasing a house with cash, it’s important to assess your financial situation and determine if you have enough cash to cover the purchase price, closing costs, and any potential repairs or renovations. A financial advisor can help with this assessment.
Financing may still be a good option even if you have enough cash to buy a house. By keeping cash reserves available, you can continue investing in other opportunities and have a financial safety net in case of emergencies.
While there are no tax implications for buying a house with cash, there may be tax implications for any rental income generated from the property or if the property is sold in the future.
When purchasing a house with cash, it’s important to consider factors such as the location, the condition of the property, any potential repairs or renovations, and the potential for rental income or resale value. It’s also important to have a professional inspection done to ensure the property is in good condition.
