Should You Buy a House in Cash or Get a Mortgage?

Buying a home is a major milestone. Therefore, deciding on how you should pay for it will also have important long-term consequences. If you can buy your home in cash, you could avoid unnecessary debt. But, taking out a mortgage can also free up your cash to invest in other things. Let’s take a look at the advantages and disadvantages of buying a home in cash vs. getting a mortgage.

A financial advisor can provide you with resources and expertise to help you make smart home buying decisions.

What to Consider When Paying for a Home

There are many differences between using cash to buy a home or taking out a mortgage. Here are some pros and cons to help you make a decision:

The Benefits of an All-Cash Offer

Buying a house in cash comes with several advantages. Primarily, an all-cash deal eliminates the need for interest payments, which can add a significant cost over the life of your mortgage.

A cash purchase can also expedite the closing process, as there’s no need for lender approval. And this can make your offer more compelling in a competitive market.

The Downsides of an All-Cash Offer

When putting your cash upfront, you should make sure to have enough liquidity to pay for additional expenses that you will incur as a homeowner.

Additionally, having less cash also means that you will be limited when it comes to making other investments. And, putting all that money into one home also means that you will be tying it to one asset.

Finally, you won’t be able to take a reverse mortgage on the equity of your home if the value goes up.

The Benefits of Getting a Mortgage

Getting a mortgage will free up your money for other investments. When managed effectively, this strategy can result in greater wealth accumulation.

Moreover, consistently meeting mortgage payments can also help you establish a solid credit history for other financial endeavors.

And, finally, a mortgage can also get you certain tax benefits and protect you from creditors.

The Downsides of Getting a Mortgage

Mortgages carry interest and closing costs. And, if your down payment is under 20%, you may also be required to pay mortgage insurance, which can drive up your interest rate even further.

You should also note that since a mortgage is a long-term commitment, you could be locked into a payback period that lasts decades. And, as a secured loan, you can end up losing your home and damaging your credit if you fall behind on payments.

Bottom Line

Whether you pay in cash or get a mortgage will depend on your finances and your tolerance for risk. Paying off your home entirely in cash will leave you debt-free. But this will also tie a chunk of your money into one asset and you could miss out on gaining higher net worth through other strategic investments. On the other hand, mortgages cost more, but could help you free up cash to diversify your investments and provide tax benefits.

Tips for Home buyers

A financial advisor can help you reach your home buying goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you want to know how much you could invest in a home, SmartAsset’s home affordability calculator can give you an estimate based on your income, savings and monthly debts.