In today’s real estate market, it seems like everybody is paying in cash. Buying a house with an all-cash offer is very appealing to buyers and sellers because it has less complexity, However, this is not a viable option for nearly all buyers and investors. The purpose of this article is to break down some of the pros and cons of baying cash for a house in this market.

Pros of paying all cash for a house

Faster Closing

The granddaddy of all reasons to buy a home: super fast closing. Because the home will be completely financed, there will be fewer roadblocks standing in the way of the closing table. In fact, cash buyers could close within days or weeks, which means the sellers get paid faster.

Waiving contingencies

Along the same lines, there are certain contingencies that can be waived when paying in all cash. Contingencies must be agreed upon by both buyer and seller to become a legally binding part of the contract. Most notably, you can waive the financing contingency because there is no need to originate a loan. In addition, the appraisal contingency can also be commonly waived since there is no need for a bank to double-check the value of the house.

Fewer fees

Since there is no loan, buyers won't have to pay a lending company for loan origination fees or loan points.

No mortgage interest or PMI

Since there is no mortgage to pay off, there won’t be any mortgage interest to pay on top of the loan principal every month (or ever). Private Mortgage Insurance (PMI) is required for homeowners who put less than a 20% down payment on the house that is paid on top of the mortgage every month until the homeowners reach a certain Loan-to-Value ratio (LTV). Since the buyer put down a 100% down payment, there is no PMI, either.

Cons of paying all cash for a house

Transfer time

Many all-cash buyers plan to use funds tied up in stocks, retirement, or other intangible means to pay for their house. To do this, the buyers must wire the money to a bank so it can be made out in the form of a cashier’s check. However, it takes a few business days to wire the money and wire times can differ by the financial institution and where the money is being wired from. This can cause delays for unprepared buyers.

Savings time

It takes no small amount of time to be able to save enough to buy a house in cash. By and large, cash buyers tend to be in the older generation who have been building wealth for decades. Aside from winning the lottery, most all younger buyers will need to finance their homes through a bank.

Loss of liquidity

When a buyer spends hundreds of thousands or millions of dollars on a home in one shot, they lost that amount of money, whether it was liquid or tied up in an investment account. Buyers who plan to purchase a home in cash should be aware that a repair may need to be made in a short time frame after purchase, which will require liquid finances to pay off.

Expenses you will need to pay for regardless of how you finance

Closing costs

Closing costs are paid at the tail end of the transaction at the closing table. The costs range from 2%-6% of the purchase price and are used to pay for the title services. You can read a breakdown of closing costs here.

Property taxes

Property taxes are inevitable when purchasing a piece of property. The seller’s real estate agent will be able to provide you with a copy of the property’s tax bill and when it gets paid. You can also check the city’s or county’s website to get an idea of the current property tax rates and if there is an increase coming up.

Homeowner’s insurance

Homeowner’s insurance covers damages and losses to a house and what is inside the home. Having a home loan requires having homeowner’s insurance. Even when you buy a home with cash, it is important to get homeowner’s insurance to protect your investment and the stuff inside it.

HOA and transfer fees

If the neighborhood you move into has a Homeowner’s Association (HOA), you will need to pay the transfer fee and begin paying the dues when they come due. You can learn this information from the seller’s real estate agent and/or by calling the HOA.