Can You Buy a House With Cash? 6 Things to Know

Posted by Justin Havre on Monday, July 1st, 2024 at 8:39am.

What to Know About Making a Cash Offer on a Home

When purchasing a new Chaparral home, there are two main ways to pay for it: use a home loan or pay in cash. Mortgages are more popular than paying in cash because they make homeownership more accessible to a larger number of people. However, paying in cash brings a lot of advantages over buyers who use a mortgage. If a buyer has the ability to pay in cash, they should seriously consider doing so. Here are some of the best reasons to buy a home with cash instead of a home loan if the option is available.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Can You Buy a House With Cash?

Yes, you can buy a house with cash in Canada. Purchasing a home with cash means that you have enough money to cover the entire cost of the property without needing a mortgage or any other type of loan.

Technically speaking, you could buy a house with physical cash, but transferring that much physical cash has additional legal hoops to jump through. What people generally mean by “buying a house with cash” is paying the entire cost of the house using money that’s already sitting in a bank account. The money is transferred by check or, more commonly, a wire transfer between banks. In this way, you can buy a house without a mortgage.

Buying a home with cash has several advantages, including avoiding interest payments, faster closing processes, and potentially a stronger negotiating position with sellers. However, it also means tying up a significant amount of liquid assets, which could impact your financial flexibility. It's important to consider your overall financial situation and consult with a financial advisor before making such a significant purchase.

Benefits of Cash Offers on a House

Benefits of Making a Cash Offer on a Home

What is a cash offer and what are the benefits of either making one or accepting one? There are a few things to keep in mind if you're considering going the cash offer route.

Sellers Like Cash Offers

If given a choice between a standard offer with a standard loan or an offer with cash, sellers are more often going to take the cash offer. Sellers like cash offers because they remove the middleman from the deal; there’s no need for a lender to get involved because the buyer has the cash upfront. While even a pre-approved buyer can have their loan approval revoked, the chances of something comparable happening to a cash offer are very low. Cash offers are nearly always a safe bet for a seller to accept, so buyers who make cash offers are more likely to have their offer accepted over others.

In some cases, a cash offer has such a competitive advantage that a buyer might pay in cash even when they’re planning to immediately refinance after the purchase, pulling the money back out of their new home to use for other things.

Buyers Don’t Need a Mortgage

One of the biggest advantages to paying in cash is there is no mortgage required. The buyer doesn’t have to get pre-approved for anything, and they don’t even need to undergo a credit check. Not needing to worry about a mortgage takes a lot of weight off the buyer’s shoulders and lets them focus on other things, such as selling their current home or packing to move. The buyer also doesn’t have to spend days waiting for pre-approval before they start looking for a home. And, arguably the most important, buyers who pay in cash will never have to pay interest on their home. Additionally, you're less likely to spend more than you can afford on a house.

Buyers Gain Full Equity Immediately

Normally, homeowners gain equity in their homes slowly over time by repaying their mortgage. There are also other ways to gain equity, such as increasing the amount of money in the down payment, but making mortgage payments is the easiest. When a buyer purchases a home with cash, they gain full equity immediately. If they want to, this gives the homeowner a lot of leeway to take out home equity loans to do home improvement projects, pay for college courses, and so on.

Buying With Cash Speeds Up the Buying Process

When buying a new home, neither the buyer nor the seller may want to wait around for real estate lenders to finalize documents. When a buyer chooses to use cash instead of a mortgage, the buyer and seller can move onward to the closing process much faster than they would be able to otherwise.

Additionally, using cash to buy a home also means the closing costs will be less expensive than they would be if using a mortgage. For example, appraisals and mortgage insurance can be skipped since they’re primarily for the lender’s confidence. You also won’t pay closing costs on the loan itself.

Paying in cash can be a good idea if a seller wants to sell as fast as possible or a buyer needs to be able to move in quickly.

What to Know About Buying a House With Cash

You’ll Have Less Financial Flexibility

Paying for a house with cash ties up a large amount of your money in the property, which can reduce your financial flexibility. When a substantial portion of your assets is invested in real estate, it limits your ability to access liquid funds for other needs or opportunities, such as emergencies, investments, or large purchases.

This lack of liquidity can be a financial strain, especially if you’ve drained your bank account and unexpected expenses arise. Therefore, it's important to carefully consider the impact on your overall financial health and ensure that you have sufficient accessible funds before deciding to buy a house outright with cash.

You Can’t Access Mortgage Tax Deductions

Mortgage interest is tax-deductible in Canada in some cases. If you don’t take out a mortgage, you can’t get the deductions. Of course, this might not interest you at all, since mortgage interest on primary residences isn’t tax deductible.

If you’re buying an investment property, on the other hand, you may be able to make the tax deductions part of your financial plan. If you’re planning to use all or part of the property to generate income or run a business, talk to a financial advisor about whether you should get a mortgage or pay in cash for your new property.