Put it on the house: Navigating a cash-only housing market

If today’s housing market tells us anything, it’s that buying a house with cash is like buying it with gold. Sellers jump at the opportunity for a number of reasons, leaving a majority of homebuyers—people who depend on a mortgage to close the deal—out in the cold. And it doesn’t seem like the trend is going away anytime soon: In January 2022, the percentage of cash sales rose to 27% according to the National Association of REALTORS^®. But just because cash offers are popular these days doesn’t mean they’re the best option for you. In some cases, it’s flat-out impossible.

First, you need to understand the nature of cash offers. True to its name, a cash offer is an offer to purchase a house without the need for a loan. From a seller’s perspective, it helps streamline the homebuying process and close the deal sooner. But for a homeowner hopeful, that’s a lot of money to part with, especially when a mortgage can help you accomplish the same goal over a longer and more manageable timeframe.

With that in mind, should everyone in the market for a new home strive to make a cash offer? It’s not as clear-cut as you’d expect.

Positive: You own your new home outright.
Negative: You lose liquidity.

By purchasing your new home with cash, you don’t need to worry about mortgage payments or interest. Aside from property taxes and expenses along those lines, you simply hand over your money and the house is yours. It may seem like a blessing, but you wind up sacrificing a portion of financial flexibility. In other words, you no longer have those funds you used to purchase the home.

Positive: You have lower closing costs.
Negative: You miss out on tax incentives.

Closing on a house can bring on unforeseen costs, including appraisal fees, title searches, credit report charges and surveys. With a cash offer, you can avoid some of these expenses and save on the overall cost of your new house. But doing so prevents you from taking advantage of the mortgage interest deduction, which allows you to deduct the interest from your taxes on the first $750,000 of your home. Besides, you can still save on the upfront expenses of your new home with the help of specialized loans like a no closing cost mortgage.

Positive: You avoid new loan payments.
Negative: You still have to pay down your old debt.

Having cash on hand to buy a house certainly has its perks, one of which is that you’re not adding another loan to your plate. But as of March 2022, mortgage rates are still incredibly low and if you have the means to pay off other higher-interest debt—student loans, credit card bills, car payments, etc.—it’s certainly worth exploring.

When deciding between a cash offer and a mortgage, there’s no right or wrong answer. All that matters is that you’re doing what makes financial sense for you and the future you’re planning for. If you’re unsure which approach works best for you, or if you’re interested in learning more about securing a mortgage, get in touch with a mortgage expert today.