Are you looking to purchase a new home? If so, there's a lot to consider when it comes to deciding whether you should pay cash or take out a mortgage. Perhaps you've discussed it with a real estate professional (such as a real estate attorney CT), but want to weigh all of your options and know the advantages/disadvantages of each method. In this article, we will cover some of the major differences between using cash or financing when it comes to buying a home. First, let's begin with the aspects of buying a house with cash.
If you have the cash, buying a home with it eliminates the need to pay interest on a loan, as well as any tacked-on closing costs. This means that there are no appraisal fees, mortgage origination fees, or other fees usually charged by lenders to assess buyers.
Another benefit of paying with cash is that it makes you more attractive to sellers—particularly those who want to transfer ownership of their property as soon as possible. In a competitive market, sellers are much more likely to take a cash offer over mortgaged offers because they don't have to deal with the disappointment and delays that may come with buyers backing out due to their financing is denied. In fact, a cash buyer may be able to obtain a property at a lower price due to accelerating the closing process and providing capital for the seller's next home/venture.
Last, it should be noted that a cash buyer's home isn't leveraged, which means that the homeowner can sell the house more easily—even sustaining a loss—regardless of market conditions.
While cash may seem like the best option, a real estate attorney CT would recommend that obtaining a mortgage also has a number of key benefits. First, tying up a lot of cash in real estate can limit one's options down the road like home repairs, as well as limiting the liquidity of the asset. Because mortgages enable homebuyers to have more funds available to them in the short-term, it creates more flexibility should you need to obtain a home-equity loan or a reverse mortgage.
Second, mortgage interest payments are tax-deductible, whereas paying cash has its own set of tax implications. This can be an important consideration for those that may want to limit their tax liability each year.
Moreover, while mortgages do end up costing more in the long-run due to the interest payments, having more available cash can be put towards other investments. These investments can return more value over the long-run had you taken out a mortgage and invested in the stock market or other business venture.
Last, not having a mortgage for your new home could potentially negate a homestead exemption if you find yourself in debt in the future. Simply put, a homestead exemption grants consumers protection from their creditors regarding whether their home is subject to outstanding debt claims. Depending on the state in which you live in, creditors may not be able to force the sale of your home to satisfy their claims—or, they may only be able to claim within certain limits of the home's equity. Florida, for example, completely exempts homes from being taken by creditors if there is a mortgage. Paying by cash could potentially lead to unforeseen problems in the future like this.
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As you can see, each method of purchasing a home has its own positives and negatives, so it's up to you to decide which will provide a greater return on your future investment. If you ultimately decide to purchase a home with a mortgage, make sure that you have the ability to afford the principal and interest payments each month; conversely, if you decide to purchase a home outright with cash, you also have to make sure to cover ongoing costs (such as homeowners insurance, property taxes, HOA fees) each month.
Which choice is right for you? A real estate attorney CT can help advise you on the best course of action to take to ensure that your decision to buy a new home is the right one. The Law Office of Chris Albanese is ready today to help is ready to navigate the various options available in purchasing a home.