Buyers - Pay Cash or Take Out a Home Loan?

It’s most likely not an option to purchase your desired home with savings only. You’ll probably need to take out a mortgage loan. It’s incredibly important to find a reliable lender. Make sure you know how much you can borrow so that you don’t obtain an extra loan.

Mortgage or cash?

If you have the lump sum money to pay for your house then you should first find out the return of investment when you pay in cash. You can consider your property as an asset if you are able to make the entire payment with cash.

If you, however, buy your home with a mortgage, your property cannot be declared property as an asset or savings. Because you could have paid the amount over a period of 15 or 30 years, you cannot include the principle amount. The savings you make is actually the interest that you’ll be paying for mortgage. Do some calculations to find out if it’s better to pay cash rather than obtaining a mortgage.

Advantages of Taking Out Mortgage

There are several advantages of taking out a mortgage rather than paying cash.

Less Investment - Most people want to purchase their homes with an entire cash payment. However, obtaining a mortgage loan means you won’t have to invest a lot of money in your home. Because of this you can invest your money in some other place. The little investment you’ll have to do from your savings is the down payment when you

Loss of liquidity – If you buy a $100,000 house with cash rather than making the 20% down payment and taking out a mortgage, you will have invested $80,000 in your property. If you face a financial crisis, you’ll have to take out a home equity loan for getting your $80,000. You’ll be agreeing to the high interest rate and will have to pay lender’s fees.

No deduction on tax – If you decide to purchase your home with hard cash, you won’t be able to get a deduction on tax. If you want to reap the benefits of tax deduction, you’ll have to buy your home buy taking out a mortgage.

Consider taking out a mortgage, it might be a better option than paying cash.


Other Buyer Guides

How will TRID impact the buying process?

As of October 3, 2015, TRID (Truth-in-Lending Integrated Disclosure Act) is officially in place and changes the way mortgage loans are originated and closed. This is important to know when purchasing a home because all mortgage transactions are effected and the buying process is time-sensitive and has associated costs (moving, repairs, etc.) Read more.