If you are purchasing a home, you are aware of the fact that there are options for financing. Among the two are home loans and cash purchases. This guide will discuss which one might be the best and why.
If you are looking for a realtor that will help you through the process, it may be wise to consider Teifke Real Estate for all of your purchasing needs. If you want to find out about how we can help, click the link to read more. Now, let’s move on and discuss each purchasing method and why it may be good (or bad) for you in terms of buying a home.
Why get a home mortgage?
Throughout the guide, we will list out the reasons why you may consider getting a mortgage. Likewise, we’ll also discuss why a cash purchase will make sense. To begin, let’s talk about the reasons why a mortgage may be your best option:
It can improve your credit score
When you are making regular payments for your mortgage, it can help with your credit score. Is it the best option for building it up? Not necessarily.
So long as you are making regular payments on time, it can help over the long-term. Home loans or mortgages are considered a form of debt that credit agencies can look at to where if it’s being taken care of, it can be more beneficial for your credit history (and thus making it easier to borrow more money if needed).
The earning potential is greater
This will depend on the mortgage rates at the time. You may earn more money from one lender compared to another. For this reason, you’ll want to consider your options on who you want to borrow from.
If you have money saved up from a planned cash purchase, you may get more for the house that you want to buy. From there, you can use the money saved as part of a down payment. This, in turn, can also give you less money to pay off.
There is a tax benefit
If you are paying a mortgage, you’ll be able to benefit come tax time. That’s because you can get a write-off for your mortgage payments including the interest you paid on it. If you are filing separately, you can write off up to $375,000 (and $750,000 if filed jointly).
Since 2018, there have been changes in the mortgage interest deduction. So you’ll want to make sure you check them out here before you make a decision to take one out.
Leveraging your debt can be a good thing since you can be able to save more money. What you do with that extra cash will be all up to you. Not only that, you’ll also be able to capitalize on the low interest rates that mortgages provide.
If you need another mortgage to take out, you may have rates that will be lower than before. How awesome is that?
Why get a home using cash?
You can purchase it outright
If you have the cash, you may purchase the home outright. You can do that and not have to worry about mortgage payments. This will put you at a huge advantage.
Yet, the payments you may be making at that point are the property taxes (assuming your jurisdiction has them). You are less likely to be foreclosed, although the possibility exists if you are behind on property taxes.
Lower monthly payments on everything else
Whether you pay for it all upfront or take a huge chunk out of it, you’ll have lower payments to work with. Not only are we talking about the mortgage but on other payments as well. This includes your homeowner’s insurance, maintenance and upkeep, and your property taxes.
With so much cash freed up, you’ll be able to allocate where portions of the cash will go. The more you are able to pay off each month, the better. With mortgage payments out of the way, you’ve knocked out what might be the largest expense of any household in the United States.
You can also use that money to go on vacation. You can spend time on the water or enjoy time away from civilization in the mountains.
A ‘trump card’ against competing buyers
If you have the cash on hand to make a large down payment or outright purchase, you have the trump card that beats out the other competitors. Once you have it placed down, the game is over. The other buyers will have to look elsewhere for their dream home.
Don’t feel bad if you feel like you’ve dashed the dreams of many people who want the same home as you do. Sometimes, you do what you can to get the house you want. Even if it means paying outright cash and not paying a single mortgage payment.
What fits you best?
So now that you have some reasons to purchase either a mortgage or cash, you’re now faced with the following options. The following will help you decide:
Get a mortgage IF:
- You have a good credit history. If your score is 620 or higher, you will likely be approved.
- You are willing to pay on time every time.
- Have 20 percent cash for a downpayment on a home.
Buy with cash IF:
-Your credit score is below 620.
-You have saved up enough cash to buy a house outright.
-You want to bypass the entire mortgage process despite having the good financial standing.
-You want the home and won’t settle for any other options.
If you are looking for a financial option for purchasing a house, it comes down to home loans versus cash purchases. You’ll want to consider which option will fit you best. At the end of the day, the cash purchase option (specifically outright) can be your best option out of many.
However, if you don’t have the cash to do that but have a good financial standing, a mortgage will be your next best option (and usually is for almost every homeowner). Regardless, you have options despite being in a disadvantage such as having poor credit history.