If you have the means to do so, you may be wondering if you should pay all cash for a home or get a mortgage. Some believe it may be better to put an all-cash offer on a home in today’s competitive housing market. However, getting a mortgage could be a smarter financing decision as property values are rising and mortgage rates remain at historical lows. If you are thinking about buying a home, we outline the pros and cons of a cash offer vs. mortgage financing.
Pros of Paying Cash for a House
A few benefits of buying a house in cash include:
Make you a more competitive buyer
The real estate market is becoming more competitive, especially in suburban areas, as there has been a greater demand for larger living spaces. If you approach a seller and offer to pay all cash, they may find you to be a more competitive buyer than someone applying for mortgage financing.
Avoid paying interest
Although there are significant expenses associated with owning a home, you will avoid having monthly payments and paying interest on the loan if you purchase the home in cash.
Close on your home faster
Paying all cash may allow you to close on the transaction and move into the home more quickly. People who can afford the house and have a tighter time frame may be more willing to purchase the home with all cash.
Avoid having trouble qualifying for the loan
If you have the financial means to do so, paying all cash for the home may be better if you have trouble qualifying for the mortgage. Maybe you recently switched jobs, are newly self-employed or have a high debt-to-income ratio. It is best to speak with a mortgage specialist first to determine your eligibility for a mortgage.
Pros of Getting a Mortgage
There are countless benefits to getting a mortgage. Here are a few reasons why you should consider getting a mortgage for your next home purchase.
Take advantage of historically low interest rates
Compared to different types of investments, such as car loans and student loans, mortgage rates have remained historically low. That means that home loans may be cheaper than other types of loans, so you may want to allocate your available cash towards a purchase other than your home.
Help maintain your liquidity
Even if you have enough money saved to buy a home with all cash, depleting your liquid assets may not be the right financial decision for you. Having more liquid cash on hand may help you better prepare for economic and personal uncertainty and make you more equipped to manage these uncertain situations.
Additionally, it may better equip you to purchase another home if you have more liquidity. If you want to sell your home and buy another, you may have to wait for the sale to finalize before you have available funds for a new down payment.
Allows you to diversify your investments
Many people believe that diversifying your investments lowers risk and ensures financial stability and strength. One of the most hallowed rules in finance is diversification. Invest the portion of the money that you would have used to pay all cash for your home into other types of high-yielding investment accounts.
Take advantage of certain tax benefits
Getting a mortgage may allow you to take advantage of certain tax benefits, such as the mortgage interest deduction rule. If you pay all cash for a home, you may not be able to take advantage of those certain tax benefits.
Build your credit score
Although you may need a good credit score to apply for a mortgage, making timely and consistent mortgage payments will naturally boost your credit score. This will prove you are a reliable and responsible borrower.
Cash vs. Mortgage: What is Right for Me?
Overall, no matter how much house you can afford, whether it is a $10 Million or $250,000 home, a mortgage may be more beneficial for your long-term financial health. If you are thinking about buying a home and are wondering if paying cash vs. mortgage financing is right for you, get in touch with one of our mortgage specialists. We will evaluate your current scenario and advise you on your best options. Just remember – even if you do not buy a home in cash, you are still investing in a significant asset that may appreciate and provide greater future value.
