Cash Vs. Mortgage

Paying cash for a home eliminates the need to pay interest on the loan and many closing costs. When buying a house with cash, there are no mortgage origination fees, appraisal fees or other fees charged by lenders to assess buyers. A cash home purchase also has the flexibility of closing faster (if desired) than one requiring financing, which could be attractive to a seller. Those benefits to the seller shouldn’t come without a price. Also, a cash buyer’s home is not leveraged, which allows a homeowner to sell the house more easily – even at a loss – regardless of market conditions.

Obtaining financing also has significant benefits. Even if a buyer has the ability to pay cash for a home, it might make sense to not tie up a lot of cash to purchase real estate. Doing so could tie your hands down the road. Cash buyers need to be sure to leave to leave themselves plenty of liquidity. If the home requires major repairs or renovations, it may be tough to obtain a home equity mortgage down the road 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 a mortgage. Selling a home bought with cash could also be a problem if the owners stretched a lot financially to buy it. Paying cash also has tax implications. Not having a mortgage could also negate a homestead exemption if you find yourself seriously in debt in the future. Most states grant consumers a certain level of protection from creditors regarding their home.

The best advice when considering which option 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 the greater return on your investment.