Purchasing a home is likely the biggest and most expensive financial decision you’ll ever make. It’s an investment that should be made carefully and thoughtfully, as it will typically saddle you with many additional financial responsibilities, including a monthly mortgage payment, significant interest fees over the years, and the risk of defaulting on the mortgage.
While it may be unconventional, you could consider buying a house in cash instead of a mortgage. It could eliminate many traditional financial risks of homeownership and present you with unique advantages.
If this is a feasible option for you, here are the top reasons why buying a house in cash might be better.
Eliminate Monthly Mortgage Payments
Making mortgage payments in Canada today can be difficult for families. In 2023, the average monthly mortgage payment was $1922. In major cities, it can be higher. While your mortgage payment depends on the price of the house you’re purchasing, your down payment, your interest rate, the loan term, and other factors, there’s no doubt that it will likely be the biggest monthly bill you face every month.
Buying a house in cash is better because it eliminates this monthly cost on your expense list. If you get laid off or run into financial difficulty, you don’t have that big expense looming over you every month. You don’t have to worry about how you will pay for it or risk defaulting on the mortgage loan.
Buying a house in cash can eliminate the long-term financial anxiety of regular payments for 20 or 30 years.
Get a Discount
Cash house buyers usually make offers with conditions, which may gain the seller’s attention. They need to help sellers see beyond their conditional offer. They must offer more than the asking price to remain competitive with other potential buyers.
If you’re buying a house with cash, you don’t need this. Your cash offer might be so attractive due to its simplicity and ease that you can offer less than the asking price. In many cases, the seller will offer a discount on the property.
Eliminate Mortgage Insurance
On top of your monthly loan payment, you may be required to purchase mortgage insurance. Lenders typically require you to take out mortgage default insurance if your down payment exceeds 20% of the purchase price. This insurance protects the lender from defaulting on your loan for whatever reason.
This is another cost you’ll need to cover if you get a mortgage to buy a home.
Further, you may get mortgage insurance. This is optional, but it protects your dependents. In the case of your death, the insurance company pays off the rest of your mortgage, so it does not become a financial burden on your family.
Eliminate the Cost of Interest
It has become more expensive to borrow money today. We’re living in a high-interest-rate market. When you enjoyed a 2% interest rate just five years ago, today, you’re looking at over 5%. This rate hike significantly increases monthly mortgage payments. Over time, it results in tens of thousands of dollars wasted in interest fees.
If you don’t want to give away so much of your money to a lender to borrow money, purchasing a house in cash is a great alternative. Skipping financing to buy the house outright can save you a lot of money in the long term.
Eliminate Conditional Offers
While we’re not in the pandemic anymore, it’s still a competitive housing market. If you fall in love with a home and want to ensure the seller accepts your offer, you can gain a competitive edge by offering cash.
Sellers generally dislike accepting conditional offers. They love cash offers because they don’t have to worry about the deal falling through because of financing at the last minute. You can stand out with cash if you believe you’ll face multiple competing offers.
Close Faster
Mortgage approval can be slow, tedious, and demanding. Financing bureaucracy will slow down your closing. If you want to own a home quickly, it makes sense to pay cash. You can skip the entire mortgage approval process, sign the papers, and get your new house’s keys.
It’s critical to note that you don’t need literal cash to make a cash offer. You can draw from the sale of investment assets, savings, financial gifts, or retirement accounts to make a cash offer.
Regardless of where you find the money, making a cash offer means not borrowing money to buy a house. As a result, there’s no need for credit checks and mortgage applications, and everything in between tends to slow down closing.
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