If you’re in the market to buy a home and you have the means, you might wonder if it makes sense to purchase a home in cash. Dave Ramsey recently tackled this question during an episode of The Ramsey Show. One of his more controversial stances is his advocacy for buying a home with 100% cash. Is this the right move for you? Here’s what Ramsey had to say about the topic.
Understanding Ramsey’s Philosophy
Ramsey’s philosophy stems from a deep-seated aversion to debt. He argues that the freedom you gain from not owing anyone is worth more than the leverage you could achieve by investing with borrowed money. This philosophy is rooted in a conservative financial approach, prioritizing stability and low risk over potential high returns that come with high risks.
“I don’t borrow money, but I don’t yell at people for taking out a 15-year fixed mortgage where the payment is no more than 1/4 of your take-home pay,” said Ramsey during an episode of The Ramsey Show. “Philosophically, I don’t borrow money, so it’s not an option for me.”
The Benefits of Paying Cash for a House
There are many pros when it comes to a cash purchase:
- No mortgage stress. One of the most compelling arguments for paying cash is the elimination of mortgage stress. Owning your home outright means no monthly payments, no interest accrual, and no risk of foreclosure if financial hardship strikes.
- More bargaining power. Cash buyers often have more leverage in negotiations. Sellers may prefer the simplicity and speed of a cash transaction, which can lead to a lower purchase price or other favorable terms.
- Saving on interest. Even at low rates, interest on a home loan can add up to a significant amount over the years. By paying in cash, you avoid these costs completely.
The Cons of an All-Cash Purchase
Unfortunately, there are also cons when purchasing a home with cash:
- Tying up resources. Buying a home in cash means a large portion of your wealth is tied up in one asset. This can be problematic if you need liquidity for emergencies or other investment opportunities.
- Missed investment returns. The money used to pay for a house in cash could potentially generate more wealth if invested in the stock market or other investments with higher returns than the current mortgage interest rates.
- Reduced financial flexibility. With less cash on hand, you may have less financial flexibility to handle other important aspects of your financial plan, like retirement savings or college funds for your children.
Should You Follow Dave Ramsey’s Advice?
The decision to buy a home in cash should not be taken lightly. Here are some factors to consider:
- Financial position. If you’re in a position where you can comfortably afford to buy a home in cash without jeopardizing your other financial goals and emergency fund, it might be a move to consider.
- Market conditions. Sometimes the housing market can be in favor of cash buyers, and other times, the benefits of leveraging with a mortgage can outweigh the benefits of paying cash.
- Personal philosophy. If you have a strong aversion to debt and value the peace of mind that comes with owning your home outright, Ramsey’s advice may resonate with you.
Buying a home with cash is a personal decision that should align with your financial situation and goals. While Ramsey’s guidance is to avoid debt, it’s crucial to assess your unique circumstances and perhaps consult with a financial advisor. Remember, there is no one-size-fits-all answer in personal finance, and the best decision is one that supports your financial well-being and peace of mind.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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