When you’re buying a new home, deciding whether to pay in cash or get a mortgage can be challenging.
On the one hand, you have the ease and convenience of paying in cash – no waiting for approvals or wondering how much money you’ll need at closing. But on the other hand, there are some significant benefits to getting a mortgage – like tax breaks, lower interest rates, and the ability to borrow more money than you could ever afford to pay upfront.
So which is better for you? This article will discuss the key points to consider between buying a house with cash vs. getting a mortgage.
What’s the Difference between Buying a House with Cash vs. a Mortgage?
Buying a House with Cash
When you buy a house with cash, you’re essentially paying for the property in total upfront. This means there’s no loan to worry about and no monthly mortgage payments to make.
Moreover, if you have the cash on hand to buy a house outright, then you’re likely in a strong financial position overall. This means you can negotiate a lower purchase price for the property since you’re not relying on financing.
For you to come up with a final decision on whether or not to pay in cash, let’s look at the pros and cons of paying with cash when buying a home.
The Pros of Paying with Cash
No financing contingency
When you make an all-cash offer, the sale is not contingent on you securing financing. With no financing contingency, it can make your offer more attractive to sellers since they don’t have to worry about the deal not getting through since you can’t get a loan.
You might be able to negotiate a lower price
If you’re in a solid financial position and can pay cash for a property, the seller may be more willing and enthusiastic to negotiate on price since they know you’re not relying on financing. This means you can get a huge discount.
No loan to worry about
An obvious pro of paying with cash is that you don’t have to deal with the hassle and stress of securing a loan. This can be a significant relief, especially if you’ve had trouble getting approved for a mortgage.
The Cons of Paying with Cash
Aside from the pros, you must also weigh the cons of paying with cash when buying a home. Among the cons include:
You might need to liquidate assets
If you don’t have the cash on hand to pay for a property outright, you may need to sell investments or other assets to come up with the funds. This can take time and effort, and you may not get the total value of your purchases if you sell them quickly.
You could miss out on other opportunities
Tying up all your cash in one investment – a house – could mean missing out on other opportunities, such as investing in stocks or picking up another property at a bargain price.
It’s not always the best use of your money
Putting all your cash into one asset can be a risky move. If the housing market crashes or you encounter financial troubles down the road, you could lose a lot of money. So if you don’t have enough money that you are willing a risk, then this payment method might not be for you.
Buying a House with Getting a Mortgage
When you get a mortgage to buy a house, you’re essentially borrowing money from a lender and using the property as collateral. This loan is paid back over time with interest, and you’ll need to make monthly payments until it’s paid off in full.
Mortgages can be difficult to qualify for, especially if you have a low credit score or a lot of debt. But if you can get approved, some significant benefits come with financing your home purchase.
The Pros of Getting a Mortgage
There are a lot of pros, too, when you purchase a house with a Mortgage. Although it might look like a hassle, here are some of the advantages of getting a mortgage:
You can get a lower interest rate
If you have good credit, you may be able to qualify for a low-interest mortgage. This can save you a lot of money over the life of the loan, especially if you plan on staying in the house for many years.
You can take advantage of tax breaks
Another big pro of getting a mortgage is that you can take advantage of the mortgage interest tax deduction. This will allow you to deduct the interest you pay on your mortgage from your taxes, saving you a lot of money come tax time.
You don’t need to have all the cash upfront
You don’t need to have all the cash upfront when you finance your home purchase with a mortgage. It can be a big advantage if you don’t have a lot of savings or want to keep your cash free from other investments.
The Cons of Getting a Mortgage
Meanwhile, there are also disadvantages to getting a mortgage. Among them are:
You’ll need to pay interest
The biggest downside of getting a mortgage is that you’ll have to pay interest on the loan. This can add up over time and cost you more than if you had paid for the property in cash.
You could lose your home if you didn’t make the payments
Another significant disadvantage of getting a mortgage is that you could lose your home if you can’t make the payments. This is a considerable risk, and you must be prepared before taking out a loan.
You might have to pay private mortgage insurance
If you put less than 20% down on your home, you may be required to pay private mortgage insurance. This is an extra fee that you’ll need to pay each month, and it can add up over time.
Q: Can I get a mortgage if I have bad credit?
A: It’s possible to get a mortgage with bad credit, but it will be more complicated than if you had good credit. You may need to make a larger down payment or pay a higher interest rate.
Q: How long does it take to get approved for a mortgage?
A: The mortgage approval process can take anywhere from a few days to a few weeks. It all depends on the lender and your financial situation.
Q: Will I need to pay private mortgage insurance if I get a mortgage?
A: If you put less than 20% down on your home, you may be required to pay private mortgage insurance. This is an extra fee that you’ll need to pay each month, and it can add up over time.
Q: Can I get a mortgage if I’m self-employed?
A: Yes, getting a mortgage is possible if you’re self-employed. However, it may be more challenging to qualify for a loan, and you may need to provide additional documentation.
As you can see, there are pros and cons to paying for a home in cash and getting a mortgage. And whether you are planning to get a new home or even a fixer-upper house to DIY, it’s essential to weigh your options before making a decision. So, if you’re unsure what’s right for you, it’s always a good idea to speak with a financial advisor.