Should you pay cash for your house if you've got the money?Most people who buy a home will need a mortgage. After all, the majority of people don’t have hundreds of thousands of dollars sitting around to make one of the biggest purchases that a person can make. If you are fortunate enough to be in that position, however, should you buy your next house with cash? The answer, believe it or not, is not a simple “yes, of course!” There are pros and cons to buying a house with cash, and we’ll lay them out here.

Pros of Paying Cash for Your New Home

The obvious pro to buying a house with cash is that it makes you a much more attractive buyer. Unlike a buyer who has to struggle with the ins and outs of getting a mortgage to buy a home, a cash buyer is a sure thing, and closing will surely be quick and painless. Given that this is a seller’s market in Northern Virginia (and across much of the whole country), a cash buyer can easily rise to the top in a sea of competing buyers when it comes to choosing whose offer wins. 

Paying cash also gives you more leverage as a buyer, for many of the same reasons we just mentioned. A cash buyer may have more room to negotiate price and other contingencies with a seller, because their purchase is a “sure thing” and because the seller will be assured that they will get their money quickly.

Cons & Considerations When Buying a Home with Cash

As for cons to buying a house with cash, the big one is that you will be tying a lot of your money up in one place, which breaks the cardinal rule of personal finance - diversify your investments. As an investment, real estate has historically not performed as well as, say, stocks. That’s why many experts say that you shouldn’t view your home as an investment. 

Also, if the house increases in value, you don’t gain as much with a cash purchase as you do with borrowed money. According to Investopedia:

“For example, suppose you bought a $300,000 home that has since risen in value by $100,000 and is now worth $400,000. If you had paid cash for the home, your return would be 33% (a $100,000 gain on your $300,000). But if you had put 20% down and borrowed the remaining 80%, your return would be 166% (a $100,000 gain on your $60,000 down payment). This oversimplified example ignores mortgage payments, tax deductions, and other factors, but that’s the general principle.”

You also sacrifice liquidity of your assets, since your money is tied up in the house. Selling it takes time, and accessing your money via a home equity line of credit or loan has limitations as well. If you tie your money up in a house, assume it is for the long run.

The long and short of it is that there are pros and cons to buying your home with cash, and it’s a decision you should weigh carefully. You can also discuss the benefits with one of our realtors to better understand the complexities at play, it's a complex topic and we are here to help.