Should You Buy a House Outright With All-Cash? Not So Fast. Read These Pros and Cons Before Submitting That Direct Deposit

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It’s true that buying a house with all-cash has many benefits. However, there also are down-sides. Just because you can do something in life, doesn’t mean you necessarily should. Here are some pros and cons when it comes to purchasing a house outright, i.e. with all-cash. Take these things into consideration before hitting the ATMunknown-1

Advantages

One advantage is that the house is definitely going to be easy to buy (and sell), as you’ve taken out a middle-man (the bank). You won’t have to worry whether or not you can get a loan, and you also aren’t going to have to worry about a mortgage or interest rates. Buying a house obviously is also much less stressful when you can buy it outright. You also have an advantage over the seller in terms of what you offer for the home, because they’ll likely take much less for the house than they would have if you had made an offer with a loan. The seller is typically willing to take less money, instead of waiting for the full amount over a pretty long period of time.

You also aren’t going to have to deal with a mortgage. Mortgages are stressful. If you ever run into hard times, financially, you’ll always have a secure place timageso live. Not only that, but if you ever have an extreme emergency, you can take out equity on your home, since you own it outright.

Of course, you should always have an emergency fund for emergencies, and should never use your home equity line option as an emergency fund. It should be an absolute last resort that you use if you’ve depleted your emergency fund already. Even just missing one mortgage payment can and will destroy your credit score. Another perk is that if you have to sell your home at any point (at a loss), you really aren’t going to take a hit at all, since you probably got the house originally for much less than it was worth. Not to mention, you’ll have never had to pay interest rates on a mortgage since you bought it with cash.

 

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Disadvantages

Now, before you get too excited, realize that there are also disadvantages to buying a home outright.

The first disadvantage is that you immediately lose liquidity. When you pay all of that money at one time, it will still cost you (but in the form of liquid assets). So if you only have enough money to purchase the house, you may not have an emergency fund at all. If you only have enough cash in all of your accounts to buy the house, you shouldn’t do it. This is because like we said above, you should always have an emergency fund, and a savings account. If you deplete both of those accounts to buy the house, you’re left with no financial security cushion.

So there you have it. Now you have all of the pros and cons of purchasing a house with cash. If you’ve got enough cash to buy the house, a pretty decent savings account balance, and enough money in your emergency fund for 6 months of living without any other income, you should go ahead and buy the house, outright!

2 Responses

  1. Eric

    Hi. Great article. I’m wondering though, how much money exactly should a person have saved in an emergency fund before they buy the house with all cash?

    • Laura King

      Hi Eric,

      That depends entirely on your expenses. Health insurance, cell phone bill, taxes, car payments, or student loans, for example. You should really have enough money to pay all of these things for at least 6 months in the event that you lose your job. As well as some more money left over in case of real emergencies. The amount really depends, and financial experts all recommend different figures. Just be sure that you have enough money for at least 6 months to pay all expenses, and some left over for any real emergencies.

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