Buying a House with Cash vs. Mortgage in NYC

Excited seller looks their open house out window at a buyer showing up with cash

If you’re fortunate enough to have a lot of cash lying around barely collecting interest, buying real estate can seem like a good alternative. Whether it’s an investment or primary residence, there are a lot of pros to buying with cash. But that doesn’t make it a no-brainer.

Table of Contents:

What is the process to buying a house with cash?
What are the advantages to buying a house with cash?
Should I buy a house with cash?
How long does it take to buy a house with cash?
What are closing costs on a cash home purchase?
How does buying a house in cash affect taxes?
Do I need title insurance if I pay cash for a house?

What is the process to buying a house with cash?

Buying a house with cash is almost identical to buying one with financing. That doesn’t mean cash doesn’t have its advantages but the process is the same.

You’ll still want to go through all available listings to make sure you’re finding the one that’s just right for you. Location, price point, number of bedrooms, property features and type - these are all ways you’ll narrow down the thousands of listings in NYC.

For more information about this general stage of the buying process, check out our buyer’s guide.

What are the advantages to buying a house with cash?

There are four main advantages to buying a house with cash.

Deal Certainty

The main reason sellers love cash buyers is deal certainty. Removing a loan also removes a ton of risk for the seller. They don’t have to worry about you not getting approved, a low appraisal, the economy falling apart or any other potential issue with the loan.

Once you sign a contract to buy all cash, you might as well be on the owner’s doorstep with a suitcase full of $100 bills - the seller knows the transaction is going to happen.

Seller Saves Money

Going through a loan application adds about a month to the closing process. Especially if the property is vacant, a quicker close means the seller saves on carrying costs such as property taxes, mortgage interest, HOA/building fees, utilities and insurance.

By saving the seller money, you effectively increase your offer. While there are a lot of ways to slice the numbers, a very rough rule is that closing a month sooner saves the seller about 0.5% of the purchase price. Not an earth shattering difference but every little bit counts.

Lower Transaction Costs

We’ll go into the details below but for now, just know paying cash avoids the mortgage recording tax when you’re buying a house or condo. That will usually save you about 1.5% of the purchase price in closing costs.

Cash Only Apartments

Sometimes a bank won’t lend in certain co-ops or condos. This can be due to the number of renters, the building’s financials or anything else the bank doesn’t like. This gives cash buyers a big advantage and the opportunity to pick up some deals.

Should I buy a house with cash?

Now that you know the advantages, the question turns to should you buy a house with cash? This is more of a personal question as it comes down to your individual risk tolerance.

The alternative to paying cash is taking out a mortgage. A mortgage frees up cash for other investments and is generally the cheapest form of financing you can get. For example, you can take that cash and invest it in the stock market instead. While there are no guarantees, historically that has been a winning trade.

In NYC specifically, buying all cash can be particularly advantageous when buying a co-op. Co-op boards like strong financial buyers so a cash purchase and the resulting low monthly payments (just building maintenance) will you an attractive buyer.

How long does it take to buy a house with cash?

If you are buying a house, a cash purchase can take as little as a few weeks. As soon as the contract is signed and the title is clear, you’re good to go. As a conservative estimate, you’ll still want to plan for about a month to close.

Condos and co-ops will take a little longer, even with cash, because the building needs to approve your sale. In a condo, you can close in 1-2 months and in a co-op 2-3 months. The extra month at a co-op is due to the board interview.

What are closing costs on a cash home purchase?

Your closing costs will be about 2% lower if you buy a home with cash. That’s 2% of the purchase price.

The majority of those savings come from avoiding the mortgage recording tax which is 1.925% of the mortgage amount. Assuming the typical 80% LTV, the bill comes to about 1.5% of the purchase price.

Bank and other financing related fees are more or less fixed and include things like the appraisal, loan application fees and the bank’s attorney. By buying all cash, you’ll save a couple thousand dollars here.

All other closing costs are unchanged. For more details, check out our dedicated buyer closing cost guide.

How does buying a house in cash affect taxes?

The only way buying with cash affects your taxes is you won’t be able to take advantage of the mortgage interest tax deduction. While everyone loves a tax deduction, this is a good one to miss. Paying no interest is even better than paying less interest.

Property taxes are not affected by a cash purchase and aside from the mortgage recording tax (explained above), nor are other taxes on the transaction itself such as the mansion tax or transfer taxes.

Do I need title insurance if I pay cash for a house?

Technically, you do not need title insurance if you buy a house with cash. If you were to get a mortgage, the bank would require it to insure their collateral.

Realistically, even on a cash purchase, you’ll need to buy title insurance because most attorneys will not work on a transaction without it. If you find one who will, it’s important to review the risk you would be taking by foregoing title insurance.

Note: This article is meant to be informational and should not be used as tax, legal or financial advice. If you have any questions about your particular transaction or situation, please contact a qualified professional.