Can You Use a Personal Loan to Buy a House With Cash?

Buying a house with cash means you pay the full purchase price upfront without needing a mortgage. This allows you to avoid interest charges and monthly payments. But coming up with enough cash to buy a home outright can be difficult for many buyers. This leads some to wonder – can you use a personal loan to buy a house with cash?

Personal loans allow borrowers to receive a lump sum of cash upfront. The loan amount is then repaid over a set timeframe with fixed monthly payments. Personal loans typically range from $1,000 to $100,000, with repayment terms between 1 to 7 years.

While personal loan amounts may not be enough to buy a typical single-family home in cash, they can fund the purchase of less expensive properties like tiny homes or manufactured homes. However, there are some key things to consider before using a personal loan for an all-cash home purchase.

Can a Personal Loan Provide Enough Money to Buy a House?

In November 2022, the median existing home sale price in the U.S. was $384,800 according to the National Association of Realtors. Clearly, the average personal loan that caps out at $100,000 won’t be enough to buy most single-family homes or condos in cash.

However if you’re interested in alternative housing options like tiny homes manufactured homes, or even converting a school bus or van into a home, a personal loan may provide sufficient financing.

• Tiny homes typically cost between $10,000 and $150,000 according to The Tiny Life nonprofit, potentially putting them within range of a personal loan amount.

• Manufactured homes cost between $81900 (single-wide) and $180700 (double-wide) per data from the U.S. Census Bureau, which could also potentially be covered by a mid-sized to large personal loan depending on creditworthiness.

• Used school buses can often be found for less than $10,000, making conversion costs the primary financing needed. And DIY camper van builds usually total $15,000–$30,000.

If you can find a property that fits within standard personal loan limits, this financing could be one way to buy a home with cash rather than getting a mortgage. Just make sure to consider the pros and cons.

Pros of Using a Personal Loan to Buy a House With Cash

Paying cash to buy a home using a personal loan offers a few potential benefits:

• Avoid mortgage costs – Buying in cash means you skip mortgage origination charges as well as interest payments. This saves substantially on the total cost of homeownership.

• Build equity faster – Without a mortgage, every payment you make goes directly towards building your ownership equity in the property.

• Potentially easier to qualify – Personal loan qualifications may be less stringent than mortgages, so borrowers with shorter credit histories or some credit blemishes may find it easier to get approved.

• Quicker process – You can often complete a personal loan application and receive funds in a week or two, while mortgages typically take at least 30–45 days to close. The faster timeline allows you to jump on purchase opportunities.

• Lower monthly payments – Even for a maximum personal loan amount, the monthly payments are often hundreds less than mortgage payments on similarly priced homes. This improves cash flow.

• No Prepayment Penalties – Most personal loans today do not charge borrowers fees for paying off the balance early. This isn’t always the case with mortgages.

Using a lump sum from a personal loan to buy a home with cash clearly has some financial upsides. But there are also a few potential drawbacks to consider before obtaining this type of financing.

Cons of Using a Personal Loan to Buy a House With Cash

While paying cash can be appealing, funding a home purchase this way also comes with some cautions:

• Loan amounts may be insufficient – Outside of tiny homes or manufactured housing, a personal loan balance is unlikely to be enough to buy a home outright in most markets. Their limits top out around $100,000, while median home prices are over $380,000.

• Shorter repayment terms – Personal loans usually need to be repaid in 1-7 years. This results in higher monthly payments than the 15-30 year terms available with mortgage financing.

• Higher interest rates – Personal loan rates are rarely below 5% and often fall between 10-30%. Mortgage rates are lower, averaging around 6% as of January 2023. Less interest paid makes buying with a mortgage more affordable long-term.

• Interest not tax deductible – You can’t deduct personal loan interest from your taxes like you can with mortgage interest. This reduces some of the savings of buying in cash.

• No home equity – Paying 100% in cash means none of your monthly payments go towards earning equity in the property like they would with a mortgage.

• Less cash for other costs – Using all your funds to pay the purchase price leaves less available for closing costs, moving, repairs, or decor. This can stretch budgets thin.

As this list demonstrates, paying cash for a home with a personal loan has some financial tradeoffs. Make sure to run the numbers carefully before choosing this route.

What Credit Score Do You Need to Buy a House With a Personal Loan?

Since personal loans are unsecured, lenders want to see you have strong credit before they’ll approve your application. Exact score requirements vary by lender, but you typically need good to excellent credit for the largest loans:

• Upstart – Starts approvals at 580 credit score
• Lightstream – Minimum of 660 credit score
• SoFi – Looks for a minimum score of 680
• Wells Fargo – Prefers scores of 720+
• Marcus – Sets its baseline at 640

The higher your credit score, the better chances you have of qualifying for one of the top personal loan amounts to buy a house in the range of $50,000-$100,000. Income, debt-to-income ratio, and other factors also play a role in loan approval amounts.

Boosting your credit score before applying can help ensure you get approved for the maximum loan amount to cover a larger cash home purchase.

What is the Maximum Personal Loan Amount?

Each lender sets its own upper limit on personal loan amounts based on factors like your income, credit rating, and ability to repay. But most lenders cap their maximums in the range of $35,000 to $100,000.

For example, here are some top maximum personal loan amounts currently available:

• Lightstream – $100,000
• SoFi – $100,000
• Upgrade – $50,000
• Prosper – $40,000
• Best Egg – $35,000

Of course, just because these lenders advertise six-figure maximums doesn’t mean you’ll qualify for that amount, especially if you have less-than-perfect credit. Work to build your score and pay down existing debts before applying to improve your chances at the highest personal loan sums.

Can You Use a Personal Loan for a Down Payment on a House?

While the full home purchase price may be out of reach, another option is leveraging a personal loan just for your mortgage down payment. This allows you to buy now with a smaller down payment while keeping monthly costs reasonable by financing the remainder.

Many lenders actually prohibit using personal loans for down payments, so you’ll need to check your chosen lender’s policies. But some may allow this purpose if structured as a general purpose personal loan.

If permitted by your lender, a personal loan for a mortgage down payment can have some advantages:

• Allows home purchase sooner than saving a 20% down payment
• Provides cash for closing costs and initial repairs
• Interest rates may be lower than FHA or VA loans depending on your credit
• Quick access to funds compared to tied-up funds like stocks or 401(k) loans

Just keep in mind that financing a down payment does cut into your ownership equity and results in paying more interest over time versus a full 20% down mortgage. Do the math to see if it fits your budget.

What is the Easiest Personal Loan to Get for Buying a House?

Ease of approval comes down to the lending requirements, so loans marketed to borrowers with fair credit are often the easiest personal loans to qualify for. Here are two top picks if your score is at least 640:

Upstart

• Minimum credit score of 580
• Approves using education and employment factors too
• Loans up to $50,000
• Offers 3 and 5 year repayment terms

Avant

• Minimum credit score of 580
• Uses cash flow for approval, not just credit
• Loans up to $35,000
• Repayment terms from 2 to 5 years

Just note, easier approval usually comes with a tradeoff of higher APRs compared to good credit loans. But in some cases, the higher rate may be worth it to get funds fast for a home purchase.

Should You Pay Off a Personal Loan Before Applying for a Mortgage?

If you use a personal loan as a stepping stone to eventually buying with a