Cash vs Financing

Should I get a mortgage for a home or pay cash? This a common question among home buyers who have the option to do both. This article will describe the benefits and disadvantages to each option.

There are many advantages to purchasing a home with Cash. It is logical to feel that is the best choice in order for you to not carry around so much debt that is associated with a mortgage.

CASH BENEFITS

When you purchase a home paying all cash you avoid:

• Paying interest on the loan
• Many closing costs
• Mortgage origination fees
• Appraisal Fees
• Other fees charged by lenders

Paying cash as a buyer makes the offer more attractive to the sellers. A cash offer is presented with proof of funds, making it much stronger as there is no contingency on financing. The sale can close much quicker if the funds are readily available. The inspection period is the main contingency. The seller can also get a great discount on the property when paying cash.

MORTGAGE BENEFITS

If you purchase the house all cash and come across major repairs in the future, you may want to apply for a home equity mortgage but find it is very difficult.

• Mortgage payments are tax deductible.

If you become in serious debt in the future, having a mortgage could protect your home from creditors in order to satisfy their claims. However the creditor could still place a lien on your bank account, so it does not protect you completely.

Main Considerations

When deciding upon whether to use cash or mortgage the property consider the following items:

• Which option gives you the most bang for your buck
• Which provides the better return on investment

Considering these two items will help you make a much more informed decision on which to use. However, in South Florida, you will commonly hear “Cash is King”. A large percentage of the real estate transactions are all cash purchases. This can make it very difficult for an individual who needs financing to compete for a  sought-after property. In my opinion, if you can pay with cash then I would recommend you do so. You will have a stronger position in negotiation and can close in a much quicker time-frame. Make sure you are prepared to show proof of funds along with the offer.

If you have additional questions that were not answered by this post, contact Emily Burville at emily@imls.com or 561-685-0338.