{"id":18987,"date":"2020-09-25T11:35:26","date_gmt":"2020-09-25T18:35:26","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=18987"},"modified":"2023-10-03T08:57:08","modified_gmt":"2023-10-03T15:57:08","slug":"buyer-cash-vs-mortgage","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-cash-vs-mortgage\/","title":{"rendered":"Pay Now or Pay Later? Breaking Down Cash vs Mortgage Pros and Cons"},"content":{"rendered":"

It\u2019s one thing to carry credit card debt on a big-screen TV that might otherwise be out of your budget. But carrying debt on real estate by way of a mortgage loan<\/a> is an entirely different scenario. How should you think about paying vis-a-vis cash<\/a> vs mortgage?<\/p>\n

There are many advantages \u2014\u00a0including financial liquidity, tax advantages<\/a>, and credit-building potential<\/a> \u2014 to purchasing a home with a mortgage.<\/p>\n

On the flipside, there are also advantages to making your purchase with cash if it\u2019s a financially viable option for you. (Spoiler: For many buyers, it\u2019s simply not.)<\/p>\n

With cash, you\u2019ll pay no interest on a mortgage loan<\/a> \u2014 and your all-cash offer<\/a> is likely to look strong against competition in a hot real estate market.<\/p>\n

To help you determine whether buying with cash or a mortgage is right for you \u2014\u00a0and explore a way to get the advantages from both strategies \u2014\u00a0dig into our expert-backed list of pros and cons.<\/p>\n

\"\"<\/a>
<\/a> Source: (Javani LLC \/ Shutterstock)<\/figcaption><\/figure>\n

The pros of buying with a mortgage<\/h2>\n

If you get a mortgage, you\u2019ll receive tax benefits as you pay off the mortgage<\/b>: Your tax savings will come as a deduction equal to your mortgage interest<\/a> for that year.<\/p>\n

The mortgage interest deduction<\/a> applies on the first $1 million of mortgage debt during that tax year for homes purchased prior to December 15, 2017; homeowners who bought houses after that date can deduct interest on the first $750,000 of the mortgage (but not the principal or insurance payments).<\/p>\n

Getting a mortgage also allows you to keep more of your liquidity intact<\/b>: If you had $500,000 in the bank, and use it on an all-cash home purchase, you now have $0 in the bank. However, if you take out a mortgage on $400,000, you\u2019d have approximately that amount left to use for other things, including investments or future maintenance or repairs.<\/p>\n

\u201cIf you have more cash available, you\u2019re going to be able to withstand many storms, if anything bad does happen to the economy or anything else, because you\u2019re going to have those liquid cash reserves in your bank account,\u201d explains agent Jordan Clarke of Clarke Real Estate Group<\/a>, who completes 13% more sales than the average Carlsbad<\/a> agent.<\/p>\n

Mortgage interest rates are very low compared to other types of loans<\/b> \u2014 so taking out a mortgage is hardly comparable to carrying a balance on a typical credit card with a high APR, for instance.<\/p>\n

And having a mortgage is a way of diversifying and building your credit that can <\/b>help build your credit score<\/b><\/a>. (Making a big purchase such as a home can actually cause a small ding to your credit at first, but if you make your payments on time, they\u2019ll help build up your credit over time.)<\/p>\n

The cons of buying with a mortgage<\/h2>\n

If you do purchase a home with a mortgage loan, you\u2019ll be paying interest on that loan<\/b>.<\/p>\n

You\u2019ll also pay origination fees<\/b><\/a> and other financing-specific expenses during and at closing<\/b>.<\/p>\n

If you\u2019re home shopping in a hot real estate market, you might face multiple-offer situations, in which you\u2019ll need to come in with a <\/b>highly competitive offer<\/b><\/a> to seal the deal. If you\u2019re coming in with a mortgage loan, your offer won\u2019t look quite as strong as an all-cash offer does.<\/p>\n

\"Numbers<\/a>
<\/a> Source: (Beniit \/ Shutterstock)<\/figcaption><\/figure>\n

The pros of buying with cash<\/h2>\n

If you purchase your home in cash, you will save overall in raw numbers<\/b>: You won\u2019t ever pay interests or fees associated with having a loan.<\/p>\n

You can also make a strong offer<\/b> if you\u2019re prepared to come in with all cash, especially important in a competitive housing market. Sellers are more confident the deal will close without financing hangups.<\/p>\n

When you pay cash, you aren\u2019t required to <\/b>get an appraisal<\/b><\/a> on the home\u2019s value<\/b>. That said, it\u2019s still a good idea to do so as it will help you understand the property\u2019s real value and make a sound purchase decision instead of paying more for a home than it\u2019s really worth.<\/p>\n

You also don\u2019t technically need to get a home inspected that you purchase with cash<\/b>, as you do with most loans. Though here, too, a home inspection is always a good idea<\/a> to save you from unpleasant \u2014 and potentially expensive \u2014 surprises.<\/p>\n

If you’re purchasing a home in cash, you\u2019ll also avoid the need for a <\/b>sales contingency<\/b><\/a> (meaning your house has to sell before the deal will go through) in the offer.<\/p>\n

And all of this streamlining means you can close faster on your new home<\/b>, with fewer potential places for bottlenecking at closing<\/a>.<\/p>\n

The cons of buying with cash<\/h2>\n

If you\u2019re buying a home with cash, you\u2019re tying up a <\/b>lot<\/i><\/b> of money in one purchase<\/b>. If you have an emergency or unexpected bills later, or need to make repairs on the home, will you have enough liquidity left to do so? You could wind up house-rich and cash-poor<\/b>, which is not a desirable place to be.<\/p>\n

If you buy in cash, you\u2019re also forgoing the ability to claim those mortgage interest deductions<\/b>, which could otherwise provide tax relief.<\/p>\n

\u201cThe drawback of paying cash is you\u2019re not leveraging your money,\u201d Clarke explains. \u201cRight now, mortgages are a very cheap form of OPM: other people\u2019s money.<\/p>\n

\u201cIf you\u2019re able to use other people’s money at a cheaper cost, then you’re able to put your money to work. And that\u2019s always something that you should do.\u201d<\/p><\/blockquote>\n

In Clarke\u2019s professional opinion, \u201cRight now you shouldn\u2019t be paying cash even if you have the ability, because you\u2019d be able to put your money to better use in many other investments.\u201d<\/p>\n

Header Image Source: (LightField Studios \/ Shutterstock)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

How should you think about paying vis-a-vis cash vs mortgage? There are advantages and disadvantages to each, so it depends on your situation.<\/p>\n","protected":false},"author":150,"featured_media":18990,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"cybocfi_hide_featured_image":"","footnotes":""},"categories":[192,629,634],"tags":[796],"class_list":["post-18987","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-for-buyers","category-home-financing","category-paying-cash","tag-cash-offer-on-a-house"],"acf":[],"yoast_head":"\nPay Now or Pay Later? Breaking Down Cash vs Mortgage Pros and Cons<\/title>\n<meta name=\"description\" content=\"How should you think about paying vis-a-vis cash vs mortgage? 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