Let’s talk money! When you invest in a new home, is it better to pay cash or finance? Well, there are a couple of pros and cons to each.
One of the main reasons somebody might choose to pay cash for a home is so that they have the security of knowing that they own their home outright and they never have to worry about continuing to pay on a mortgage among their other bills. Another reason they might choose cash is to present a stronger offer to the seller. In today’s market, there’s a lot of competition, and people are looking for ways to have a stronger offer. If they can afford to pay cash for the property, the sellers might choose their offer over another because it will typically lead to a quicker closing and they won’t have to worry about whether the buyer’s financing falls through before closing. Another reason someone might pay cash for properties is to save on interest. Over the life of the loan, you’re going to be paying interest on the property. And initially, when you’re getting your mortgage, there are going to be some fees and things that the bank will charge you. Paying cash is a way for people to save a little bit of money in that regard.
One of the main downsides to buying with cash is if you’re taking a large amount of cash out of your investment accounts, you’re no longer receiving the interest that it was previously earning in your investment accounts. So you’ll want to assess your situation and the market to determine if it’s better to buy cash or keep the money in your investment accounts.
Even with the upsides of buying cash, almost 90% of homebuyers finance their home with a mortgage. There are several reasons why this might be a good idea. One of the main reasons is once you purchase the home you’ll have funds to put towards repairs, furniture, decor etc. If you’re paying cash, you’ve used up a huge chunk of your savings and may not have much money to use on other expenses. It’s often a good idea to get a mortgage and keep a little extra cash on the side for those improvements and things that you want to do. You also get a tax deduction by having a mortgage on your home and it can even help boost your credit score! The biggest downside to having a mortgage is of course the interest that you’ll pay over the term of the loan and having a loan itself. The best thing to do is be honest with yourself about what your preferences are and weigh your options with a local lender.
I hope this information was helpful to you in your home buying process. If you would like lender recommendations or want to speak to a licensed professional, call (217) 422-3335.
Check out Three Things to Prepare to Buy Your Dream Home and Are Home Warranties Worth It?