Buying a House with a Mortgage or with Cash?
At one time, homes were always purchased with cash.
Gradually, over time, the American buying public has become much more
comfortable with the notion of financing the cost of a home. As a result,
almost all homes are now purchased through financing. The simple fact is that
without the ability to finance the purchase of a home, most of us would never
be able to attain the dream of home ownership. Still, if you actually have
enough cash to actually purchase a home outright, you might find yourself in a
quandary as to whether it would be better to purchase the home with the cash or
finance it. There can be potential advantages associated with each option, so
it is important to carefully consider the pros and the cons of each option
before making a final decision.
Buying a House with Cash
Perhaps the biggest advantage associated with buying a house with cash, if you
can afford to do so, is that you will avoid paying thousands of dollars in
interest over the course of the mortgage term. When it is all said and done,
you could save $100,000 in interest on the purchase of a $250,000 home. That's
not all, either. If you are paying with cash you may very well be find that
sellers are more willing to negotiate and will throw in additional concessions
or may even lower the sales price.
Along with the staggering savings available when purchasing
a home with cash, there is also the fact that it is just less time consuming
and less of a hassle. When you are not financing a home, you do not have to
worry about completing the mounds of paperwork necessary to become approved for
a mortgage loan. This can potentially allow you to close much faster on the
home. In fact, without the hassles involved with financing, you could close on
the home in a week or two in some areas as opposed to months when you finance.
In addition, you do not have to worry about being tied down
to a mortgage for the next fifteen or twenty years. If you are looking at
having to send kids to college in the future or anticipating your own
retirement, this can certainly be a big incentive for paying cash for the
purchase of your home now if you are able to do so.
Buying a House with a Mortgage
There is no getting around the fact that the biggest
advantage associated with buying a house with a mortgage is that it allows
millions of people around the country the opportunity to purchase a home. Not
many people have the financial savings to be able to pay cash for a house. For
homeowners who plan to stay in their home for the long-term, there is the incentive
of being able to recoup the increases if the home appreciates in value. While
that might not seem likely at the moment, given the state of the current
housing market, if you do stay in the home for several years and it appreciates
in value, you will be able to take advantage of that increase in value whether
you still owe a mortgage or not.
Also, by purchasing with a mortgage, you will be able to
leverage your financial capabilities and possibly purchase a better or bigger
home than you would be able to buy if you are limited solely to the amount of
cash you have on hand. If you're looking up upgrade to a larger home or you are
interested in buying into an area where the prices are higher, buying with a
mortgage could be to your advantage.
As most people are aware, if you owe a mortgage on your home
you are also able to take advantage of other benefits, such as tax breaks. At
the current time, there is still a tax deduction available for mortgage
interest payments. Keep in mind that the amount you are able to receive back in
mortgage interest deductions is limited by your income.
Finally, keep in mind that using a mortgage to purchase your home is actually a good way
to diversify your assets. If you plunk down all of your savings on the cost of
a home, you might have little left in savings to assist you in the event of an
emergency. On the other hand, if you use part of your savings for the down
payment and finance the remainder of the home's cost, it allows you to keep
more of your cash as liquid assets, which can be handy if you have unexpected
expenses in the future
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