Thinking Of Buying A Home In Cash? Here's The Pros + Cons

Buying a home with no mortgage probably sounds like an absolute dream, right?

The South Jersey sellers market has become highly competitive over the last few years (even pre-pandemic) and it's made it so much harder for buyers to get their offers accepted. With cash offers being looked at more favorably by sellers — who want a quick and easy close — more and more buyers are trying to find ways to submit all-cash offers.

You might be interested to know that in 2017 all-cash sales accounted for 29% of single-family and condo sales, and the REALTORS® Confidence Index revealed that buyers of investment properties, distressed sales, and second homes are also more likely to pay in cash.

Jumping forward to post-pandemic 2022, more than 36% of single-family home and condo purchases were cash deals — so you can see this percentage has jumped dramatically in just 5 years.

There are many situations where paying for a home in cash can be a good option for buyers in South Jersey. For instance, if you have a substantial amount of savings, or you've been left an inheritance, or — and this is probably the most likely scenario — you've built up equity in your existing home.

If you've ever considered purchasing a home with cash, it's essential to understand the pros and cons before committing to the decision.

“Cash offers are the most effective strategy for winning a bidding war” — stated a study from Redfin. It significantly improves the chances of getting an offer accepted; an offer has a 97% better chance! In the luxury market, it boosts the likelihood of success by over 400%.

Cash purchases often come with shorter escrow periods and fewer contingencies, giving buyers an advantage in hot markets with bidding wars.

Buying a home with cash can help you save money on loan-related expenses such as closing costs, lender's title insurance, and other fees typically charged by mortgage lenders.

While there are still expenses to consider, such as processing fees, they are considerably lower compared to getting a mortgage. By paying with cash, the savings can amount to 2-5% of the home's purchase price.

It’s not secret that mortgage interest is a highly significant expense when purchasing a home using a mortgage. Cash buyers save an incredible amount of money compared to their mortgage-using counterparts.

Even with lower rates, mortgage interest still adds up to at least tens of thousands of dollars over a typical 15 or 30 year mortgage period.

A cash purchase allows you to save this additional cost and allocate the saved money towards your savings, retirement fund, or other investments.

If you have cash to fund a home sale, it might be worth speaking to a trusted accountant to figure out the best next steps for your money.

An all-cash purchase tends to close sooner because there is less paperwork involved and no lender to deal with; unfortunately, many home sale transactions can fall apart right at the very end due to the mortgage not going through, devastating buyers and frustrating sellers.

With cash, buyers and sellers can avoid delays related to credit scores, mortgage approval, or home appraisals. Both parties can feel more assured knowing there are fewer potential issues that could disrupt the deal.

Without a mortgage, you can live without worrying about monthly payments. For many buyers making an all-cash offer, this reason alone provides security and peace of mind.mIn challenging financial situations such as losing ones’ job, homeowners are assured they won't face foreclosure because they own their homes. Monthly obligations are limited to property taxes and homeowners' insurance.

Buyers with less-than-stellar credit but a steady income and substantial savings often face challenges in getting approved for financing. Paying for a house with cash eliminates the need to navigate the mortgage process and worry about credit history.

Buying a house with cash can limit your liquidity since a significant amount of money is paid upfront. It's essential for homebuyers to ensure they still have money left for emergencies when considering an all-cash offer.

Tying the majority of your money into a single asset through an all-cash home purchase is a factor to consider. Even billionaires, like Facebook founder Mark Zuckerberg, often choose the mortgage route to maintain a diversified investment portfolio.

One of the most appealing financial incentives for buyers is the significant tax deduction on mortgage interest, and paying for your home with cash means you won't be eligible for this tax benefit. While losing out on the deduction is a downside, not paying mortgage interest already provides a significant advantage. Speak to an accountant to see what is best for you.

Cash offers can close faster due to fewer contingencies and no mortgage delays. However, it can pose a challenge if the seller is not yet ready to move out or hasn't found their next place. A speedy sale can put the seller in an awkward position if their home sells faster than expected.

This is why, even though you may be eager to move in, you should try to be as flexible as possible to the sellers’ needs if you want to get your offer accepted in a sellers market.

Paying regular mortgage payments can have a positive impact on your credit score. Regular and timely payments contribute to a long payment history so, of course, this benefit is not available if you've paid for your home with cash.

...especially if you're tying up a significant amount of dollars in a single asset by buying it all-cash. So it's wise to chat to a real estate agent (and — perhaps — a trusted mortgage lender) to help you decide what's the best route for your financial circumstances.

If you have questions, or if you’re thinking of buying or selling in South Jersey, you can message The JFKLiving Team here.