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Most people probably expect to use a mortgage to purchase a home, but what if you have enough to pay in cash?

In a hot housing market, an all-cash offer can give homebuyers a significant competitive edge over those whose bids are contingent on getting a mortgage. And who wouldn’t want to avoid monthly house payments if they could?

Does it really make sense, though, to forgo getting a home loan — especially when you could invest the money and potentially earn a higher return?

Cash vs. Mortgage: A Quick Overview

According to the National Association of Realtors®, 28% of home sales in December 2022 were cash deals.

Those buyers undoubtedly had a mix of motivations when they decided to pay with cash. Some people don’t like the idea of carrying a big debt — or paying the interest on that debt. Others might want to skip some of the lending costs and nerve-wracking processes (approvals, appraisals, inspections, etc.) that are required when taking out a home loan.

And, yes, a cash offer can be an attention-getter when there are multiple offers on a house.

But it’s also important to look at the advantages of having a mortgage.

Before you move forward with a home purchase, here are some of the pros and cons of buying a house with cash vs. a mortgage.

Pros of Buying a House With Cash

There are some clear benefits to paying cash for a house, including:

Beating Out Other Buyers

A cash offer can help you compete more effectively with real estate investors who are able to pay cash for properties of interest.

Or you may be able to negotiate a better price with a seller who’s looking for a quick closing. If your seller already had an offer or two fall through because of contingency issues, it’s possible you’ll be perceived even more favorably.

Speeding Up the Buying Process

When you use a mortgage to buy a home, you can expect to spend a few anxious days working on your loan application, pulling together your paperwork, and waiting for the lender’s approval.

Then you’ll have to wait for a property appraisal, a title search, and other steps that let the lender know the collateral being used for the loan is solid.

With cash, you might be able to avoid some of those steps — and the costs that go with them. (You still may want to follow through, though, with procedures meant to ensure that your purchase is sound, even if they aren’t required. Otherwise, undiscovered issues could come back to bite you if you refinance or sell the home in the future.)


💡 Quick Tip: Mortgage loans are available with flexible term options and down payments as low as 3%.*

Buying When the Appraised Value Isn’t Market Value

Paying cash for a house can allow you to purchase a home that won’t appraise for the seller’s asking price (or the price the average buyer may be willing to pay). If you understand the problems and plan to make necessary improvements, you may still decide it’s the house you want.

No Monthly Payment and Fewer Long-Term Costs

With a cash purchase, you won’t have a monthly mortgage payment in your budget, which can feel quite freeing. And you can avoid some of the long-term costs associated with a mortgage, including interest and private mortgage insurance.

Cons of Buying a Home With Cash

Drawbacks also exist when paying cash for a house. Here are a few:

Losing Out on Investing Potential

Yes, if you pay cash, you’ll save by not paying interest, but could you make more money year to year by investing your money elsewhere? If you can lock in a low interest rate on a mortgage, it could free up cash for other purposes, including saving for retirement. (Plus, diversifying your portfolio is recommended in most cases. If you put most of your cash into your house, that’s just one asset — the opposite of diversification.)

Remember, diversification can help reduce some investment risk. However, it cannot guarantee nor fully protect in a down market.

Keep in mind also that if you liquidate assets to help pay for the home, you won’t just lose out on the earnings potential. If those assets have gone up in value since you purchased them, you also may trigger capital gains taxes.

Using Up All Your Cash

If purchasing your home with cash takes a big chunk out of your savings, you might not have the money you’ll need later for unexpected expenses or home improvements.

And if you end up using a credit card for those costs, the interest rate will likely be higher than it would be for a mortgage. The average rate in 2023 is 22.38% for new offers.

Cash Isn’t Always Better

An all-cash offer is a power move, but it won’t necessarily win the day. Though the thought of a quicker and easier closing will probably get the attention of the seller, they may still go with the highest offer, even if it includes a mortgage contingency.

Missing Out on the Mortgage Tax Deduction

If you itemize on your federal taxes, you won’t be able to deduct your mortgage interest if you pay cash for your home. Depending on what you’d pay in interest each year and what your tax bracket is, this could be a significant consideration.

The deduction can also be taken on loan interest for second homes, as long as it stays within the limits.

How to Buy a House With Cash

If you like the idea of being an all-cash buyer and you’re wondering what that process involves, here are some next steps to consider.

Consolidate Your Cash

Getting your cash together in one place could take a while, so give yourself some time. If you’re ready to buy, you may want to move your money from savings accounts, and any investments and other assets you’ve liquidated, to one easy-to-access account.

If you already own a home and plan to sell it, you’ll have to factor that into this process, as well, especially if you need the cash from the sale of your current home to put toward the purchase of your new home.

Negotiate the Price and Sign the Contract

Once you know how much cash you have to work with, you can make an offer on a home. Be prepared to provide proof that you have enough money to make the purchase. If the offer is accepted, you’ll sign a contract.

Consider the Worth of an Inspection

If you’re paying cash, a home inspection won’t be required. However, it’s a good way to protect yourself in case there are hidden issues. The same goes for getting an appraisal, owner’s title insurance, a termite inspection, and homeowners insurance.

Prepare for the Closing

The closing is when you’ll seal the deal and pay the seller. You may be asked to provide a cashier’s check for the amount you owe, or you might be able to pay with an electronic transfer.

How to Obtain a Mortgage

If you’ve decided that buying a house — or a second home — with cash isn’t doable or practical, then you’ll need to know how much you can afford to borrow.

Getting prequalified and preapproved are basics in securing a mortgage. The first provides a ballpark estimate of how much you may be able to borrow and at what rates, and the other will tell you exactly how much you can probably borrow and at what terms.

When getting preapproved, lenders will review things like your credit scores, employment history, earnings, assets, and debt to make sure you can meet your mortgage payment obligations.

You’ll need to consider if your savings are enough for your down payment, closing costs, moving costs, and home repairs. Even if a 20% down payment is ideal, that’s not always realistic or required.

Recommended: What is the Average Down Payment on a Home?
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💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan. ”

Delayed Financing: An Option for Cash Buyers

Delayed financing is a way to combine the benefits of cash and mortgage home buying. In short, it’s a way for you to buy a house with cash but then refinance the property within the first six months to get some of your cash investment back.

This route gives you the advantages of being a cash buyer but the ability to regain some of your sacrificed liquidity.

The cash-out amount can vary by loan program and there are specific eligibility requirements. For example, lenders generally require that the purchase was an arm’s-length transaction. This means the buyer and seller do not have any relationship outside of this transaction.

The stipulation is included to help ensure that each party is acting without pressure from the other and that both have access to the same information about the deal.

You may also need to show the lender a copy of your settlement statement showing the home was purchased with cash, a title report showing that you are the owner and that there are no liens on the property, and proof that your own money was used to make the purchase (no borrowed, gifted, or business funds).

The Takeaway

Paying cash for a house can be a good way to get attention in a hot seller’s market. And the idea of avoiding a monthly mortgage payment — and interest — can be appealing. But there are potential downsides to an all-cash deal.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOHL0623075

Getting most types of loans requires borrowers to prove their creditworthiness. To do this, many lenders review an applicant’s credit history and credit score.

Students who may have little or no credit, or even bad credit may be wondering, can you get a student loan with bad credit? It is possible to borrow a student loan with bad credit. Federal student loans, with the exception of Direct PLUS loans, do not require a credit check.

Private loans, on the other hand, generally do review a borrower’s credit history to inform their lending decisions.

Read on for some more information on the different types of student loans, information on how credit scores are used in a lender’s decision making process, and how to get a student loan with bad credit.

Getting a Federal Student Loan

As mentioned, when applying for most federal student loans, the status of your credit is not usually a factor. One exception is if you are in default on an existing federal loan, that may hinder your ability to qualify for more federal funding.

In order to take out federal student loans, you first need to fill out the Free Application for Federal Student Aid (FAFSA®). If you are a dependent student, you will also need your parents to fill out their portion of the FAFSA.

Are you a Dependent Student?

Not sure if you’re a dependent student or not? You very likely are if you are under the age of 24, even if you are financially independent and even if your parents don’t claim you as a dependent on their tax forms any more.

If you’re under the age of 24, there are a few ways you wouldn’t be considered a dependent student including if you were legally emancipated, are an orphan, are married, are an armed services veteran, or currently serving active duty, or if you have legal dependents other than a spouse.

Subsidized and Unsubsidized Student Loans

The FAFSA is used to determine your financial aid award, including both Direct Unsubsidized or Subsidized Loans.

Subsidized Federal Loans take financial need into account and the federal government will pay the interest that accrues on these types of loans while the borrower is attending college. So, the principal amount that is initially borrowed will remain the same until after graduation.

Unsubsidized Federal Loans don’t take credit history or your financial need into account, and you are responsible for paying any interest that accrues — including while you’re in school and during times of deferment or forbearance.

Another type of federal loan is called the PLUS Loan, and it’s available to parents of students if they want to help fund their children’s college education. It’s also available for graduate/professional students. According to the Department of Education, all Direct PLUS Loan applicants go through a credit check, because a qualification of the loan is that the borrower can’t have an “adverse credit history.”

Recommended: Comparing Subsidized vs. Unsubsidized Student Loans

Getting Private Student Loans

If you find that sources of funding like federal student loans, scholarships, grants, or earnings from work-study will not be enough to fund your education, then private student loans may be another option to consider. Note that private student loans do not come with the same borrower protections afforded to federal loans (such as federal forgiveness programs or income-driven repayments or deferment options) and are usually only considered after all other options have been reviewed.

When it comes to private student loans, you may be asking yourself, can I get a student loan with bad credit? Private lenders are more likely to rely on credit scores and credit history when determining their lending decisions.

So if, for example, you currently have a lower credit score, or not enough credit history, you may want to consider applying with a cosigner who has solid credit history, which can help strengthen the loan application. And, if you haven’t really established your own credit history yet, a private lender will also likely want a cosigner for at least two reasons:

•   There is scant record to demonstrate how responsibly you would pay back a loan

•   About 15% of your FICO® Score is based on the length of your credit history (and 90% of lenders use FICO Score when making lending decisions)

Development of Credit Scores

Credit scores were first developed by the three major credit bureaus and the Fair Isaac Corporation (FICO) in the late 1980s and have now been widely adopted by the financial industry. Before the development of such scores, lenders needed to slog through credit reports that were sometimes pages long, and then make lending decisions that, at least in part, were based on these reports. Under that system, it was easier for the biases of lenders to play a role in lending decisions.

With credit scores, information is quickly summarized, and lenders can establish objective requirements about what type of credit is needed before a cosigner is required and/or a loan can be approved.

How Credit Scores Are Used

When applying for a loan, as mentioned previously, about 90% of lenders refer to your FICO Scores as a sort of risk “litmus test.”

Now, let’s say you apply for a private student loan. The lenders will review your application, including your credit score, and they can approve it, deny it, or offer you something different from what you requested.

Lenders will likely look at your credit score, as well as factors like how many loans you currently have, your payment history, and the amount of time in which you’ve responsibly used credit.

Recommended: Can You Get a Student Loan With No Credit History?

Building Credit Scores

Thirty percent of your FICO Score is based upon how much money you owe. This means that reducing your debt may help build creditworthiness. These tips may also help those who are interested in paying off debt on the way to potentially strengthening their credit scores:

•   Make monthly payments on-time.

•   Prioritize paying off credit card balance monthly.

•   Consider reducing the interest rate on debt by consolidating credit card debt into a personal loan.

•   Snowball down the debt. With this method, if you have debt spread across multiple credit cards, you’d start by paying off the account with the smallest balance while making minimum payments on the rest. Then move to the next smallest bill, paying as much as you can on that one until it’s paid off, and so forth.

•   Limit the amount of spending done with a credit card.

Once your credit gets stronger, you may want to consider refinancing any existing student loans you have. With student loan refinancing, you take out a new loan to replace the old loan, ideally with a lower interest rate and better terms.

If you currently have student loans, and you’re wondering if refinancing might be a good option for you, using a student loan refinance calculator can help you determine how much you might save.

Should you refinance your student loans? If you can get better rates and terms with a stronger credit score, it may be worth it. However, it’s important to note that refinancing federal student loans makes them ineligible for federal programs and protections. If you don’t need to use those programs, you may want to explore refinancing.

Recommended: Student Loan Refinancing Guide

The Takeaway

Credit scores and credit history can play a big role in a lender’s decisions. They are used to determine a borrower’s creditworthiness and can influence if an applicant is approved for a loan and the types of terms and rates they qualify for.

Can you get a student loan with bad credit? Aside from Direct PLUS Loans, federal student loans do not require a credit check. However, private student loans usually do require a credit check. As mentioned above, because private student loans lack the borrower protections afforded to federal student loans (like income-driven repayment plans), they are generally borrowed only after the student has exhausted all other options.

If you have student loans and you’re thinking about refinancing them to get a more competitive interest rate, consider SoFi. There are no fees and you can check your rates in just minutes.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.