Potential Complications Of Buying A House In Cash

Buying a house in cash may relieve you of monthly mortgage payments and give you a sense of security (as far as home ownership is concerned). Unfortunately, a cash purchase still has its disadvantages. Here are some of the issues you should prepare to face when you buy a house in cash:

It Depletes Your Liquid Asset Reserve

Unless you have millions of dollars in your bank accounts, buying a home in cash will severely deplete your savings. This is especially true if you have managed to raise the money for the purchase after years of saving and frugal living. It will be difficult to tap into the cash tied up in your home in cases of financial emergencies. Property sales take a long time (weeks or months) to sail through. Therefore, only go down this route if you have alternative cash reserves you can fall back on in times of financial trouble.

It Makes You Ineligible for Some Tax Breaks

When you buy a house using a mortgage, you receive a tax break on the loan interest. As long as the tax laws remain what they are today, you will be glad you took a mortgage when the tax season comes around. If you opt for a cash purchase, you won't enjoy the tax breaks because you won't be paying any interest.

It's Akin to Putting All Your Eggs in One Basket

If the amount you want to use for the purchase represents all or a significant portion of your savings, then you will be risking it by using it all on the house. Should something happen to the house, you will be left with a serious financial problem. For example, you stand to lose a lot of money if property prices fall and the house loses much of its value. This is even truer for investment properties. Instead, it's wise to use the funds as down payments for several properties and spread your risks.

You May Miss Out on Third-Party Valuation and Validation

When you buy a house on mortgage, the bank will be involved in its valuation to confirm that the house is worth what you are saying it's worth. This is because they also want to protect their investment (the money they are loaning out to you). If you buy a house in cash, it's easy to overlook some of the things the bank wouldn't have overlooked. The lack of third-party valuation can easily lead to loss of money.

For additional advice and help with purchasing a home, contact a real estate agency in your area.