Are you looking to purchase a house? Wondering what the differences are between purchasing in cash and getting a mortgage? Find out today.
Ready to buy a house? If so, you should prepare yourself for some big decisions:
What house should I buy? What is the best community to live in? What are the top features to look for in a house?
Which is the better way to pay: cash vs mortgage?
If you’re struggling to decide whether to pay cash or get a mortgage, it might be wise to learn about the main differences between these two options.
Continue reading if you’re interested in learning how paying cash for a house is very different than obtaining a mortgage loan for the purchase.
You’ll Save a Lot of Money If You Pay Cash
A primary benefit you’ll experience by paying cash for a house is the ability to save a lot of money. When you have enough cash to pay for a house in full, you’ll be able to avoid paying the following expenses:
- Loan origination fees
- Other fees lenders charge for offering a loan
- Interest on the loan
The average amount spent on closing costs on a mortgage loan is around $4,876. While you might have to pay some of the costs associated with closing on a house, you would pay a lot less than this amount.
You’ll Have Fewer Requirements If You Pay Cash
The second benefit of paying cash for a house is you’ll have fewer requirements. If you pay cash, you eliminate the third-party—the lender.
Lenders have so many rules in place that borrowers must follow including one that involves getting title work and title insurance. If you pay cash, you wouldn’t have to get these things.
If you want to make the closing process easier, pay cash for the house. You’ll have a faster closing and you’ll spend a lot less on the deal.
You’ll Use All Your On-Hand Cash
A good thing to consider is how much cash you actually have on hand. Do you have just enough to pay for the house you want to buy or do you have more than this?
It’s never a smart move to use every last dime you have to buy a house—this would leave you broke. What if you encountered an emergency expense? What if you suddenly lost your job?
Having no cash reserves is probably not a good option so it’s important to evaluate how much you would have left after paying cash for a house. If you’d be left low on cash, choose a mortgage.
You’ll Lose Tax Benefits
The other downside to paying cash for a house is losing the tax benefits you can take advantage of when you have a mortgage.
Having a mortgage on your house allows you to take a mortgage tax credit on your property taxes which helps you save money on this yearly expense.
Secondly, homeowners with mortgages have the ability to write off the interest they pay on their home loans each year. You would also lose this ability if you paid cash for your house.
Cash vs Mortgage: Which Is Right for You?
Now that you have the details on the key differences of purchasing a home with cash vs mortgage, you should have a good idea which option is better for you.
If you still have questions about this decision, check out our blog for more great tips on buying a house with cash or with a mortgage or speak to a certified financial advisor.