Should you pay cash for your home or finance it with your local bank? Before making this big decision, review the pros and cons of each type of purchase. Everywhere you turn, you hear how bad it is to carry debt. So naturally, it is logical to think that buying a home with cash or sinking as much cash as possible into your home to avoid the massive debt associated with a mortgage is the smartest choice for your financial health. But there is a lot to consider when contemplating purchasing a home outright versus financing it. We will discuss some of the major differences between using cash or taking out a mortgage to buy a home.
Paying cash for a home means you won’t have to pay interest on a loan. Cash sales are attractive to sellers because they can close quicker. In this competitive market, a seller is likely to take a cash offer over other offers because they don’t have to worry about a buyer backing out due to financing being denied.
On the other hand, obtaining financing also has significant benefits. Even if a buyer can pay cash for a home, it might not make sense to tie up a lot of cash to purchase real estate. Doing so could limit your options if other needs arise down the road. If the home turns out to need major repairs or renovations, it may be tough to obtain a home-equity loan or mortgage, as you don’t know what your credit score will look like in the future, how much the home will then be worth, or other factors that determine approval for financing.
Paying a mortgage can also provide tax benefits for homeowners who itemize deductions versus taking the standard deduction. And while you should not opt for a mortgage just to get a deduction, a reduced tax obligation never hurts.
The best advice when considering whether cash or mortgage makes the most sense is to opt for the choice that gives you the bigger bang for your buck. Also, ask yourself which will provide a greater return on your investment. If you decide to purchase a house with a loan, make sure you can easily afford the principal and interest payments each month. If you decide to go with cash, make sure you will still have enough to cover ongoing costs like property taxes, homeowner’s insurance, and other fees each month.
Talk to your tax advisor, meet with your local mortgage lender and let them guide you to make the best decision for your needs.
Our market is crazy! Homes are going under contract in just hours, some with multiple offers. Inventory is still low. So, if you are considering selling your home, contact your local REALTOR® so they can get you the best price, whether it is a cash sale or a financed option.
Have a great week! Remember to do good things!
Stephanie Lemley, 2021 MBOR President
