The pros and cons of buying a home in cash

They say there’s no romance without finance. For many, there’s also no residence without financing. But more homebuyers than you’d think actually prefer pure cash transactions in which the balance is paid in full without mortgage loan borrowing.

In fact, based on new data recently released by RealtyTrac, deals completely involving cash accounted for 29.1 percent of all home purchases in 2013, up from 19.4 percent the year before; in December 2013 alone, all-cash transactions represented 42.1 percent of all U.S. residential sales.

John R. O’Brien, a Chicago real estate attorney, says there are several reasons why buyers choose to pay cash. They often get a better deal from sellers who prefer a faster closing and not having to wait for a buyer’s loan to be approved. Buyers may have an aversion to debt be unwilling to pay the higher interest rates associated with mortgage financing for certain properties. They have poor credit that prevents them from qualifying for financing, or they could be downsizing retirees who can afford a cash transaction.

The advantages of cash deals are that buyers don’t have to pay interest; they own the home outright without fear of making monthly payments or foreclosure (so long as your property taxes are paid); and they have the ability to negotiate better pricing and act on deals faster while also closing quicker.

“The cons are that you’ll miss out on the tax write off that mortgage interest payments give you, and you won’t have as much liquid cash for other investments,” says Theresa Bastian, broker/owner of Keep Austin Weird Homes in Austin, Texas.

To ensure a smooth and safe cash transaction, “the buyer should always consult a competent real estate professional or appraiser, who can tell them what the place is truly worth before they sign a contract, and an attorney before or at the time the contract is signed, since there is no lender looking out for possible problems with things like the title,” says O’Brien.

“Cash-only purchases are the wiser approach — if you can afford it without completely draining all your assets — as you’ll get a better price most of the time,” O’Brien says.