Finance The way Americans buy homes is changing — and it presents a huge problem for the middle class

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The least and most expensive houses and condominiums are being purchased without debt by cash only transactions.

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(Rich Pedroncelli/AP)
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  • The least and most expensive houses and condominiums are being purchased without debt by cash-only transactions.
  • Nearly a third of home purchases in 2017 were made without a mortgage.
  • Saving money or looking at more affordable housing can open the door to buying a home with cash.

Most Americans don't have tons of cash floating around.

That can make buying a home difficult for some, as all-cash home sales remain above normal levels, The Wall Street Journal reports.

For many, buying a home means taking out a mortgage, but data from Attom Data Solutions shows that 28.8% of homes purchased in 2017 were made without any debt incurred.

Buying a home with cash is most common for the least and most expensive homes, rather than those in the middle.

Low cost homes — those under $100,000 — are bought with cash 63.9% of the time according to Attom. On the other side, 49% of homes priced at $2 million or more are bought with cash, which can be a result of luxurious lifestyles, especially among international buyers, according to The New York Times.

This means millions of Americans are stuck in the middle and can't buy a home in cash. For the most part, the middle class does not have enough savings available or are pursuing homes they can't afford to buy with cash.

For sellers, all cash offers are more attractive for many reasons. Sellers face no risk and do not have to deal with wait times or bank loans when selling in cash. A buyer may even be able to snag a house with a lower bid if they offer to pay in cash, as The Wall Street Journal reported.

Cash purchases are also beneficial for homebuyers who can swing it. Buyers save money in the long run by avoiding paying mortgage interest. As Freddie Mac shows, mortgage rates are historically low — below 4% — but the interest can still accumulate extra costs. For a 30-year mortgage of $250,000 at a 4% rate, the buyer will end up paying $179,674 in interest.

Taking out a mortgage may become even more of a burden if the GOP tax plan goes through without change. The plan would cap mortgage deductions at $500,000 and eliminate deductions on second homes.

Before deciding to purchase a house in cash, make sure you have enough money on hand for all expenses. In addition to the price of the house, there will be closing costs, which Zillow estimates as being between 2 and 5%, and other miscellaneous costs such as repairs and renovations.

Ultimately, to afford a home in cash, it may be wise to check out cities that have lower costs of living.