I’m 32 and just inherited $300k from my grandmother and I’m being told to use all of that to buy my house in cash – is that a smart idea?

Buying a home is not an inexpensive prospect these days. According to the National Association of REALTORS’ most recent data, the median existing U.S. home sale price is $406,100, which marks a 4.7% increase from late 2023. And with mortgage rates hovering around 7%, even a modestly priced home could become expensive to pay for.

Now for many people, signing a large mortgage is the only way to become a homeowner. But what if you have an unexpected windfall to work with?

That’s what happened to the writer of this Reddit post. Their grandmother passed away and left them $300,000. They had $75,000 in savings prior to receiving that money and were in the process of buying a house.

Given their $60,000 income, they’re being encouraged by their parents to buy their home outright in cash and avoid a mortgage. It’s well-intentioned advice, but I have a problem with it.

Key Points from 24/7 Wall St.

• Buying a house in cash means avoiding mortgage interest.
• Paying cash for a house also means tying up money in an illiquid asset.
• A good compromise could be to make a larger down payment for lower mortgage payments, but keep some of that money saved and invested.
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Why buying a house in cash isn’t always best

It’s easy to see the appeal of paying cash for a house. You can avoid the hassle of applying for a mortgage and the pain of paying interest on a mortgage, especially given today’s rates.

But I’m not a fan of paying cash for a home for one big reason. Houses are not exactly liquid assets. They can take a lot of time to sell, and their value can fluctuate based on market conditions.

Because of this, I don’t love the idea of tying up a few hundred thousand dollars — the majority of this Reddit poster’s assets — in a home. I think a safer bet would be for them to make a larger down payment to avoid PMI (private mortgage insurance) and keep their monthly payments manageable. But I would not suggest sinking $300,000 into a home, even if that leaves them with $75,000 in savings.

That $75,000 could go pretty quickly if the home ends up needing a lot of repairs, or if the poster then loses their job and remains out of work for an extended period of time. I’d rather see them use more like one-third of their inheritance for a down payment, and then invest the rest.

A portfolio of stocks could turn the remainder of that inheritance into a large sum of money over time. Also, stocks are fairly liquid, so if a need for cash were to ever arise, stocks would be pretty easy to sell off.

Get financial help

Any time you’re coming into a large sum of money, it’s a good idea to consult a financial advisor for help in managing it. So I’d recommend that this Reddit user talk to a professional about how to best manage their windfall. An advisor can also help them establish an appropriate home-buying budget based on their new financial circumstances, keeping their income and goals in mind.