Buying a House With Cash

If you’ve got enough cash burning a hole in your pocket, you might be considering skipping the mortgage entirely and buying a house outright.

It’s an enticing idea: no monthly payments, no interest piling up over decades, and immediate ownership of your dream home.

Cash transactions are increasingly common in the North American real estate market. In Canada, more than 20% of home sales in 2020 were all-cash deals, up from 18% in 2016. In the US, all-cash sales made up 38% of home sales in 2023, according to ATTOM.

But is it really smart to buy a house with cash in Canada? Let’s explore the pros, cons, and steps involved in making an all-cash purchase.

Can You Buy a House in Full With Cash in Canada?

Yes, you can buy a house in full with cash in Canada. Instead of borrowing money from a mortgage lender, you pay for the entire purchase price upfront in cash.

When you pay cash, first you’ll need to have all of your funds available in one account and provide proof of funds to the seller.

Cash transactions are typically handled through a real estate lawyer or settlement agent with payments via a cashier’s check or wire transfer.

If you are familiar with the real estate process, it’s also possible to complete a cash transaction on your own, but we recommend working with a professional.

While buying a house with cash avoids interest payments and simplifies the closing process, it ties up your capital in an illiquid asset and diminishes your financial flexibility.

The Benefits of Buying a House with Cash

Avoid Paying Interest

When you buy a house with cash, you save money by avoiding the interest payments that come with a mortgage.

Over a typical 25- or 30-year mortgage term, the interest portion can add up to hundreds of thousands of dollars. For example, if you buy a $900K home with 20% down, the total interest portion of your payments adds up to a net present value of over $200K.

Once you own the home outright, your monthly expenses are limited to property taxes, utilities, and maintenance.

All Cash Bids are More Competitive

A cash offer tells sellers that you’re a serious buyer who is capable of closing the deal fast and without issues.

Unlike financed offers, cash bids come without the risk of lender approval falling through, which makes your offer more competitive — especially in a hot market.

If you find a distressed sale property from a highly motivated seller, you are more likely to negotiate a discount on the sale price with a cash offer.

Faster Closing Process

With a cash payment, you won’t have to wait for a mortgage approval or go through lengthy financing steps.

Cash transactions close in a fraction of the time, meaning you get to move into your new home faster.

How To Buy a House With Cash

If you’re ready to buy a house outright, here’s what you’ll need to do:

1. Gather Proof of Funds

Before making an offer, ensure all your cash is accessible in one account. Sellers and their agents will likely ask for proof of funds, such as:

• A letter from your bank.

• Bank statements showing the full amount.

• Investment account summaries or tax returns.

2. Hire a Settlement Agent or Real Estate Lawyer

In Canada, working with a real estate lawyer or settlement agent is crucial to completing the transaction. They’ll help with title searches, preparing the deed, and ensuring the funds are transferred securely.

3. Arrange Payment

Payment is usually made via a cashier’s cheque or wire transfer. These secure methods ensure the seller receives the funds promptly and without complications.

Cons of Buying a House With Cash

While paying cash has its perks, there are some serious drawbacks to consider:

Reduced Liquidity

A house is an illiquid asset, meaning it’s not easily converted back to cash. If you tie up a significant portion of your savings in a property, you might have less flexibility for emergencies, vacations, or other investments.

Missed Investment Opportunities

By using your cash to buy a house, you forgo the chance to invest that money elsewhere, such as in stocks, bonds, or Guaranteed Investment Certificates (GICs). Depending on market conditions, these investments could offer better returns over time.

Ongoing Homeownership Costs

Even without a mortgage, you’ll still need to budget for home maintenance, repairs, and upgrades. Plus, life events like holidays, health emergencies, or passing on an inheritance require careful financial planning.

Summing it Up

Buying a house with cash in Canada has undeniable advantages. You’ll save on interest payments, be able to bid more competitively, and close the deal faster.

However, you should carefully consider your financial goals and the opportunity cost of tying up all of your investment funds into real estate, which is considered an illiquid asset.

For some, taking out a mortgage can still be a smart move. You retain your liquidity, which means you can invest your funds elsewhere while slowly building up your credit.

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Top-rated Kelowna Realtors | Vantage West Realty

At Vantage West Realty, we’re here to help you weigh the pros and cons and find the best path to homeownership for your unique situation.

If you’re buying a home in Kelowna or the Okanagan Valley, British Columbia, reach out to us today to explore your options and make your dream of owning a home a reality.

Contact Vantage West Realty