Buy a Home With Cash Or Get A Mortgage? | Bankrate (2023)

If you’re thinking about making a cash offer on a house, you’re not alone. A significant number of homebuyers eschew borrowing: all-cash deals made up 27 percent of home purchases in March 2023 alone, National Association of Realtors (NAR) stats show. Nationwide, all-cash purchases accounted for nearly 40 percent of single-family home and condo sales in the first quarter of 2023, according to ATTOM, a curator of land, property and real estate data — and 36 percent in 2022, the highest in a decade.

However, even if you have the means to pay for a home in full, it doesn’t necessarily mean you should do so. Let’s consider the pros and cons of buying a house in cash vs getting a mortgage.

Key takeaways

  • Paying for a house in cash can speed up the buying process, lower your long-term costs and give you instant 100% home equity
  • Getting a mortgage allows you to save that cash for other financial goals, offers tax deductions and can enhance your credit score
  • Before you buy a home in cash, consider a variety of factors, including the state of the local real estate market and the long-term cost of a mortgage

Cash offer vs getting a mortgage

An all-cash offer occurs when a buyer purchases a home without taking out a mortgage or other loan. Instead, the buyer taps their savings, investments, or funds from the sale of another property, or another source — such as gifts from relatives or friends. The point is, they are paying for the property outright with their own money, as opposed to financing the purchase in a way that uses the home as collateral.

All-cash offers are similar to offers that involve loans in some key ways. You’ll still be required to provide financial documentation, since the seller will want to see proof you have the funds you plan to use to buy the home — in fact, you may need to provide even more, or more detailed, statements than a lender might ask for.

You’d probably want to arrange an appraisal to ensure that you’re paying an appropriate price for the home as well as a home inspection to check for any safety issues.

In addition, you’ll still have to set up an escrow account. You’ll make an earnest money deposit when you sign the purchase and sale agreement, usually 1 to 2 percent of the home’s purchase price, which will be held in escrow until the transaction is finalized.

Come the closing, you’ll still have to pay for a real estate attorney, a title search and title insurance and other administrative expenses. But you’ll get to skip lender-related closing costs, such as origination fees.

When you should consider getting a mortgage

  • To use your money elsewhere
  • To reduce your tax bill
  • To build your credit

To use your money elsewhere

Before you think about writing a check for the entire cost of a new home, think about what else you might do with that cash. Do you need to cover college expenses for your kids? Are you behind on your retirement savings?

Take a long look at your finances to understand how much in liquid assets you’ll have remaining if you pay with all cash. If that smaller amount seems like a potential source of major stress, getting a mortgage is a better option. You can make a sizable down payment and keep the majority of those funds free for other uses.

To reduce your tax bill

If you normally itemize deductions on your tax return, getting a mortgage can reduce what you owe, since mortgage interest payments are tax-deductible. This can be very important for high earners who typically itemize and want to maximize their deductions.

To build your credit

Having debt isn’t necessarily a bad thing. Having a mortgage gives you the chance to make those regular payments that make you look great in the eyes of the major credit reporting agencies. In the long run, managing your mortgage debt on a regular basis can help improve your credit score.

When you should consider paying cash for a house

  • To beat out other buyers
  • To speed up the process
  • To save on closing costs
  • To lower your long-term costs

To beat out other buyers

A shortage of housing inventory has fueled an insanely competitive market. In fact, NAR data shows that there are four offers for every one property sold. An all-cash offer stands out from the crowd. Put yourself in the seller’s shoes: If you’re comparing three bids that all hinge on the ability to get full approval from a lender with one offer that requires nothing, but is ready to go — which would appeal to you more?

To speed up the process

Paying with cash can also simplify the home-purchase process. There’s no loan application, preapprovalor approval, so you’ll save yourself the potential headaches and stress of shopping for and dealing with a lender. You can likely save some time, too, since that lender won’t need to gather and comb through all your paperwork, deciding on whether to approve you. All told, side-stepping the mortgage can speed up your closing by as much as a month.

Bankrate insights

Underwriting — the process by which a lender evaluates your finances and decides whether to approve your mortgage application — is notorious for adding weeks to the home-purchase experience. In May 2023, the average time to close a mortgage was 42 days, according to ICE Mortgage Technology, a loan-processing company.

To save on closing costs

If you have the funds, paying all-cash for a home definitely saves you money, since you won’t have to pay any of the costs associated with taking out a mortgage. The origination fee and other closing costs can add up to 2 to 5 percent of the purchase price. So, if you’re purchasing a $300,000 home, eliminating closing costs might help you lower your bill by somewhere between $6,000 and $18,000.

To lower your long-term costs

In addition to saving on your upfront fees, paying in all-cash means you won’t be paying interest, which can add up to a huge chunk of change. For example, let’s say you’re comparing a $425,000 cash offer with a $340,000 30-year mortgage (a loan on the same home after 20 percent down) with a 6.5 percent interest rate. Over the course of that loan, Bankrate’s mortgage calculator shows you would pay nearly $433,674 in interest, for a total cost of $773,674. If you can swing the cash offer in that scenario, it might be beneficial, depending on how you would otherwise invest the sum.

Cash offer vs. mortgage homebuying considerations

As you ponder buying a house with cash, ask yourself these questions to help guide your thinking:

What’s the state of the housing market?

If you really want to secure that home, keep in mind that another buyer might feel the same way. If that’s the case, an all-cash offer can be a difference-maker. A recent Zillow survey revealed that 41 percent of real estate agents say that making a cash offer is the best strategy to win a bidding war. Remember that real estate is a hyper-local industry, though. If you’re buying in a very hot housing market like Austin or Denver, all-cash can be the ideal route. If you’re buying in an area where sales have been more sluggish, you may be just as successful at winning by getting preapproved for a mortgage.

How much more will you pay with a mortgage?

Say you’d like to purchase a $400,000 home, putting down a 20 percent payment of $80,000 for a 30-year mortgage for the remaining $320,000, with a fixed interest rate of 5 percent. Closing costs typically amount to 2 percent to 5 percent of the loan principal, so in this case, $8,000 to $20,000.

By the end of the loan term, you’ll pay $298,000 in interest. Adding your total interest to your closing costs, you would end up paying an additional $306,000 to $318,000 over a 30-year period. Your total cost would be almost double that of the loan itself.

This cost might be offset to some degree if you’re a taxpayer who itemizes deductions on your return. You might get some tax savings each year if you’re able to deduct your mortgage interest payments. If you’re married, you can deduct the interest on up to $750,000 of qualifying home loans. If you’re married and filing separately, that limit is halved to $375,000. Bankrate’s mortgage interest tax deduction calculator can offer a sense of the tax savings.

How much money will you have left if you pay in cash?

If you pay cash for a home, you might feel good knowing you won’t have a big bill each month, but make sure you don’t stretch your finances too thin to accomplish that. You’ll still need to have an emergency fund in place, and you’ll need to have enough money to cover home maintenance and repairs. You’ll also want to make sure your cash purchase doesn’t impact saving for retirement or other long-term plans.

Bottom line

The decision between buying a house with cash vs a mortgage hinges on your overall financial picture, not just the home itself.

Buying in cash to save on mortgage interest might not be the best choice if you have other promising options for investing the money or if you have other major expenses on the horizon. Getting a mortgage can provide a lot of financial flexibility by keeping more of your money liquid to tap for emergencies. And while mortgage rates have been increasing lately, you can still take steps to lock in low rates. For example, if you make a large down payment and get a 15-year mortgage, you will still be able to secure a competitive deal.

However, for retirees or those who desire to be debt-free, a cash purchase can provide certainty and security that is difficult to put a price on. Paying in cash gives you the peace of mind that you own your home — your most important asset — free and clear.


Buy a Home With Cash Or Get A Mortgage? | Bankrate? ›

The law demands that mortgage companies report large transactions to the Internal Revenue Service. If you buy a house worth over $10,000 in cash, your lenders will report the transaction on Form 8300 to the IRS.

Does the IRS know when you buy a house cash? ›

The law demands that mortgage companies report large transactions to the Internal Revenue Service. If you buy a house worth over $10,000 in cash, your lenders will report the transaction on Form 8300 to the IRS.

How much house can I afford if I make $70,000 a year? ›

If you're an aspiring homeowner, you may be asking yourself, “I make $70,000 a year: how much house can I afford?” If you make $70K a year, you can likely afford a home between $290,000 and $360,000*. That's a monthly house payment between $2,000 and $2,500 a month, depending on your personal finances.

Is it better to have cash or property? ›

To save on closing costs

If you have the funds, paying all-cash for a home definitely saves you money, since you won't have to pay any of the costs associated with taking out a mortgage. The origination fee and other closing costs can add up to 2 to 5 percent of the purchase price.

Why is cash better than a mortgage for a seller? ›

This is because when selling a home, cash offers represent less risk to the seller. A cash offer vs mortgage for a seller can give sellers more confidence in the buyer. With a cash offer, there's no chance financing could fall through. This ensures the deal goes ahead as planned.

Is buying a home in cash a tax write off? ›

As a newly minted homeowner, you may be wondering if there's a tax deduction for buying a house. Unfortunately, most of the expenses you paid when buying your home are not deductible in the year of purchase. The only tax deductions on a home purchase you may qualify for is the prepaid mortgage interest (points).

What happens when you pay in full for a house? ›

No Mortgage Payments, Interest Or Other Fees

Paying in cash means you get to skip the mortgage process and all the costs and fees that come with it, including interest rates or mortgage insurance. Skipping out on interest can save you a lot of money in the long run.

How much do you have to make a year to afford a $400000 house? ›

Assuming a 30-year fixed conventional mortgage and a 20 percent down payment of $80,000, with a high 6.88 percent interest rate, borrowers must earn a minimum of $105,864 each year to afford a home priced at $400,000. Based on these numbers, your monthly mortgage payment would be around $2,470.

Can I afford a 300K house on a $70 K salary? ›

On a $70,000 income, you'll likely be able to afford a home that costs $280,000–380,000. The exact amount will depend on how much debt you have and where you live — as well as the type of home loan you get.

How much house can I afford if I make $120000 a year? ›

If you make $50,000 a year, your total yearly housing costs should ideally be no more than $14,000, or $1,167 a month. If you make $120,000 a year, you can go up to $33,600 a year, or $2,800 a month—as long as your other debts don't push you beyond the 36 percent mark.

Is it smart to keep cash in the house? ›

It's a good idea to keep a small sum of cash at home in case of an emergency. However, the bulk of your savings is better off in a savings account because of the deposit protections and interest-earning opportunities that financial institutions offer.

What is a negative aspect of buying a house with cash? ›

Paying all cash for a home can make sense for some people and in some markets, but be sure that you also consider the potential downsides. The drawbacks include tying up too much investment capital in one asset class, losing the leverage provided by a mortgage, and sacrificing liquidity.

How much cash should I have before buying a house? ›

How Much Money Do You Need to Buy a House? A good number to shoot for is saving 25% of the sale price, in addition to setting aside 3–6 months' worth of your typical expenses for emergencies. So if you're looking to buy a $300,000 house, you should save around $75,000 (on top of your emergency fund).

Why do sellers prefer cash only? ›

For sellers, the biggest perk of a cash offer is the surety it comes with — particularly in a volatile rate environment. Mortgaged buyers just come with more risk than cash-backed ones. Namely, they should have finance contingencies in their contracts, which allow them to back out if their loan doesn't come through.

Why do sellers only want cash? ›

All cash is better because there's less risk

For sellers, the fewer contingencies the better and no contingencies is ideal. Particularly now, when we are seeing a very sudden and dramatic upswing in pricing, appraisal contingencies can kill an offer's chances of success due to the fear of a low appraisal.

Why do sellers like all cash? ›

A cash offer is an all-cash bid, meaning a homebuyer wants to purchase the property without a mortgage loan or other financing. These offers are often more attractive to sellers, as they mean no buyer financing fall-through risk and, usually, a faster closing time. Have you received a cash offer on your home?

At what age do you stop paying taxes? ›

At What Age Can You Stop Filing Taxes? Taxes aren't determined by age, so you will never age out of paying taxes. Basically, if you're 65 or older, you have to file a tax return in 2022 if your gross income is $14,700 or higher.

Can I write off something I bought with cash? ›

It does not matter whether you pay by credit card, check or out of a cash box. Just like other deductions, you still have to record the details of the purchase or payment. The IRS lists the information needed to backup a deduction on your returns, so log that directly on the receipt.

What is deductible when buying a home? ›

Most home buyers take out a mortgage loan to buy their home and then make monthly payments to the mortgage holder. This payment may include several costs of owning a home. The only costs the homeowner can deduct are: state and local real estate taxes, subject to the $10,000 limit.

At what age should you pay off your mortgage? ›

In fact, O'Leary insists that it's a good idea to be debt-free by age 45 -- and that includes having your mortgage paid off. Of course, it's one thing to shed a credit card balance by age 45. But many people don't first buy a home until they reach their 30s.

Why is it better to not pay off mortgage? ›

Because mortgages tend to have lower interest rates than, say, a credit card, using extra cash to pay off those debts will save you money on interest in the long run.

Are there disadvantages to paying off mortgage? ›

Paying it off typically requires a cash outlay equal to the amount of the principal. If the principal is sizeable, this payment could potentially jeopardize a middle-income family's ability to save for retirement, invest for college, maintain an emergency fund, and take care of other financial needs.

Can I afford a 500k house on 100K salary? ›

A 100K salary means you can afford a $350,000 to $500,000 house, assuming you stick with the 28% rule that most experts recommend. This would mean you would spend around $2,300 per month on your house and have a down payment of 5% to 20%.

Can I afford a 500k house on 200k salary? ›

A mortgage on 200k salary, using the 2.5 rule, means you could afford $500,000 ($200,00 x 2.5). With a 4.5 percent interest rate and a 30-year term, your monthly payment would be $2533 and you'd pay $912,034 over the life of the mortgage due to interest.

How much house can I afford if I make $80000 a year? ›

For the couple making $80,000 per year, the Rule of 28 limits their monthly mortgage payments to $1,866. Ideally, you have a down payment of at least 10%, and up to 20%, of your future home's purchase price. Add that amount to your maximum mortgage amount, and you have a good idea of the most you can spend on a home.

What percentage of Americans make $75000 a year? ›

Even though 51% of U.S. households earn $75,000 or less, they could only afford 23% of the listings on the market in April, the study finds. In some cities, the shortage is even more acute.

How much income do you need to buy a $500000 house? ›

To afford a $500,000 house, you need to make a minimum of $91,008 a year — and probably more to make sure you're not house-poor and can afford day-to-day expenses, maintenance and other debt, like student loans or car payments. One good guideline to follow is not to spend more than 28 percent of your income on housing.

What is the 28 36 rule? ›

The 28/36 rule refers to a common-sense approach used to calculate the amount of debt an individual or household should assume. A household should spend a maximum of 28% of its gross monthly income on total housing expenses according to this rule, and no more than 36% on total debt service.

Is 150k good salary? ›

Earning $150,000 puts you well above the average salary in the U.S — over double the median income, in fact, according to Census data. With this salary, you can likely afford a bigger home than most, and likely in a more desirable location.

What house can I afford on 150k a year? ›

I make $150,000 a year. How much house can I afford? You can afford a $450,000 house.

How much house can you afford on 175k? ›

A $175,000 salary is equal to $14,583 per month in gross income; 28 percent of that comes to $4,083. So, according to the 28/36 rule, the maximum amount you should spend on housing is $4,083 per month. The 36 part of the rule, the sum you should not surpass in total debt, is 36 percent of $14,583, which is $5,250.

Is it illegal to have too much cash? ›

Having large amounts of cash is not illegal, but it can easily lead to trouble. Law enforcement officers can seize the cash and try to keep it by filing a forfeiture action, claiming that the cash is proceeds of illegal activity. And criminal charges for the federal crime of “structuring” are becoming more common.

How much cash should I have in bank? ›

A long-standing rule of thumb for emergency funds is to set aside three to six months' worth of expenses. So, if your monthly expenses are $3,000, you'd need an emergency fund of $9,000 to $18,000 following this rule. But it's important to keep in mind that everyone's needs are different.

How do you store cash so it doesn't mold? ›

Keep any paper cash, currency, and valuable paper records locked in a quality, humidity-controlled, fire-resistant safe. If you have valuables such as paper cash or other important/sensitive documents, you absolutely need to invest in a quality safe with UL-rated security and certified fire protection.

Is it good to own your home outright? ›

Owning your home outright provides a valuable equity cushion, and it's exciting when you no longer shoulder the burden of monthly mortgage payments. The good news is that you don't have to sell your home to access your equity.

What are 3 disadvantages to buying a house? ›

Disadvantages of owning a home
  • Costs for home maintenance and repairs can impact savings quickly.
  • Moving into a home can be costly.
  • A longer commitment will be required vs. ...
  • Mortgage payments can be higher than rental payments.
  • Property taxes will cost you extra — over and above the expense of your mortgage.

Do I have equity in my home if I own it? ›

Equity is the difference between what you owe on your mortgage and what your home is currently worth. If you owe $150,000 on your mortgage loan and your home is worth $200,000, you have $50,000 of equity in your home.

How much income do you need to buy a $650000 house? ›

To determine whether you can afford a $650,000 home you will need to consider the following 4 factors. Based on the current average for a down payment, and the current U.S. average interest rate on a 30-year fixed mortgage you would need to be earning $126,479 per year before taxes to be able to afford a $650,000 home.

How much income do you need to buy a 600k house? ›

You need to make $222,019 a year to afford a 600k mortgage. We base the income you need on a 600k mortgage on a payment that is 24% of your monthly income. In your case, your monthly income should be about $18,502. The monthly payment on a 600k mortgage is $4,440.

How much money do you need for a 250000 house? ›

How much do I need to make for a $250,000 house? A $250,000 home, with a 5% interest rate for 30 years and $12,500 (5%) down requires an annual income of $65,310.

Do cash buyers always offer less? ›

Cash buyers will often, but not always, offer below the asking price or market value of the home. This is seen by many as a 'cash buyer discount'. Many sellers will see this lower offer as an acceptable 'payment' in return for the quicker and more secure house sale that usually comes with cash house buyers.

Why is cash the best option? ›

Fewer Security Risks

There is also a practical security advantage with cash. Although debit and credit cards often have personal identification numbers (PIN) and chips for extra security, there is less risk of identity theft or your information getting stolen online when using cash.

Should you buy everything in cash? ›

The biggest benefit of paying cash only is that you can only spend what you have. People become more strategic and less impulsive, because there's no backstop. Once you run out of cash, you run out. Those who pay in cash also avoid some of the biggest wastes of money and can more easily cut their bad spending habits.

Why would a seller reject a cash offer? ›

If your home purchase offer was rejected, it was likely for a reason involving money. Your offer price may have been too low or too high, or they may have simply received a better offer. Other reasons could include the listing agreement commission structure, specific contract requirements, or personal reasons.

Why is cash better than mortgage seller? ›

Paying cash for a home means you won't have to pay interest on a loan. You will also save money on closing costs by using cash instead of taking out a mortgage. Using cash to pay for a home often gives the buyer an advantage in getting the home, in part because the seller does not need to depend on financing approval.

Why do sellers prefer conventional over FHA? ›

Sellers often prefer conventional buyers because of their own financial views. Because a conventional loan typically requires higher credit and more money down, sellers often deem these reasons as a lower risk to default and traits of a trustworthy buyer.

Why is all cash good in real estate? ›

Paying in cash means you get to skip the mortgage process and all the costs and fees that come with it, including interest rates or mortgage insurance. Skipping out on interest can save you a lot of money in the long run.

Why do sellers prefer higher down payment? ›

A higher down payment shows the seller you are motivated—you will cover the closing costs without asking the seller for assistance and are less likely to haggle.

Why is cash more expensive? ›

The cost of an average cash transaction

The average cost of cash in a cash-only transaction can range from 4-15% over retail segments, but some of the top contributing factors include the opening and rebuilding of cash drawers, as well as back office and banking charges.

Do all home sales get reported to IRS? ›

You do not have to report the sale of your home if all of the following apply: Your gain from the sale was less than $250,000. You have not used the exclusion in the last 2 years. You owned and occupied the home for at least 2 years.

Are mortgages reported to IRS? ›

Qualified mortgage interest and points are generally reported to you on Form 1098, Mortgage Interest Statement by the mortgage holder to which you made the payments. You can deduct interest for the following types of mortgages: A mortgage you took out on or before October 13, 1987 (grandfathered debt)

Can the IRS take your primary residence? ›

The answer to this question is yes. The IRS can seize some of your property, including your house if you owe back taxes and are not complying with any payment plan you may have entered. This is known as a tax levy or tax garnishment.

How does the IRS know if I have rental income? ›

Ways the IRS can find out about rental income include routing tax audits, real estate paperwork and public records, and information from a whistleblower. Investors who don't report rental income may be subject to accuracy-related penalties, civil fraud penalties, and possible criminal charges.

What triggers an IRS audit? ›

Failing to report all your income is one of the easiest ways to increase your odds of getting audited. The IRS receives a copy of the tax forms you receive, including Forms 1099, W-2, K-1, and others and compares those amounts with the amounts you include on your tax return.

What are red flags for the IRS? ›

Some red flags for an audit are round numbers, missing income, excessive deductions or credits, unreported income and refundable tax credits. The best defense is proper documentation and receipts, tax experts say.

Is money from sale of house considered income? ›

If you owned and lived in the home for a total of two of the five years before the sale, then up to $250,000 of profit is tax-free (or up to $500,000 if you are married and file a joint return). If your profit exceeds the $250,000 or $500,000 limit, the excess is typically reported as a capital gain on Schedule D.

Can the IRS seize a property with a mortgage? ›

If the IRS issues a federal tax lien against you, the lien attaches to all of your property including your home. The IRS has the right to foreclose the lien through a foreclosure lawsuit under local law. This process is similar to how a mortgage holder forecloses against a homeowner.

Can I write off my mortgage? ›

You can't deduct home mortgage interest unless the following conditions are met. You file Form 1040 or 1040-SR and itemize deductions on Schedule A (Form 1040). The mortgage is a secured debt on a qualified home in which you have an ownership interest. Secured Debt and Qualified Home are explained later.

How does having a mortgage affect your tax return? ›

The mortgage interest deduction allows you to reduce your taxable income by the amount of money you've paid in mortgage interest during the year. So if you have a mortgage, keep good records — the interest you're paying on your home loan could help cut your tax bill.

What assets Cannot be seized by IRS? ›

There are only a few types of assets that cannot be seized. The IRS cannot seize real property, and your car cannot be seized if used to get to and from work. You also cannot seize the money you need for basic living expenses. However, all of your other assets are fair game for seizure.

What assets can IRS seize? ›

An IRS levy permits the legal seizure of your property to satisfy a tax debt. It can garnish wages, take money in your bank or other financial account, seize and sell your vehicle(s), real estate and other personal property.

Can the IRS collect after 10 years? ›

The IRS cannot chase you forever and, due to the 1998 IRS Reform and Restructuring Act, taxpayers have a little relief from the IRS collections division's pursuit of an IRS balance due. After this 10-year period or statute of limitations has expired, the IRS can no longer try and collect on an IRS balance due.

Does Zillow report to IRS? ›

All payments you receive through the Zillow platform are reportable payments. IRS guidelines require the gross amount of all reportable payment transactions is reported. Subsequent refunds or other adjustments are not taken into account.

Does Zelle report to IRS? ›

Long story short: Zelle's setup, which uses direct bank-to-bank transactions, is not subject to the IRS's 1099-K reporting rules. Other peer-to-peer payment apps are considered “third-party settlement organizations” and are bound by stricter tax rules.

Will the IRS catch unreported income? ›

Normally a flag won't be triggered unless there are a few instances of rounded numbers. Unreported income: The IRS will catch this through their matching process if you fail to report income. It is required that third parties report taxpayer income to the IRS, such as employers, banks, and brokerage firms.


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