Buying a House with Cash vs. Mortgage – Pros and Cons

It is rarely possible for people to buy a house without a mortgage, as very few can afford paying cash instantly. However, there are some blessed homebuyers, as well as those who have enough cash to afford a house without taking any help from finance lending companies. However, even such fortunate buyers get confused in taking a decision over whether to buy the house with cash or opt for a mortgage as the later has its advantages too.

buying a house with cash

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Let’s discuss the pros and cons of buying a house with cash to help you make an informed decision.

Hassle-free and secured process

Not having any mortgage is quite beneficial as it can allow the freeing up of monthly allotted cash for paying your loan interests. Further, the cash can be useful for other monthly necessities or payments. Another benefit is that one needn’t have to be concerned about losing the ownership on their home, due to foreclosure or any other similar reasons. Even if the buyer wants to take out a mortgage, the qualifying process involved is a hassle. Sometimes, in spite of showing sufficient income and assets you may not get a mortgage. The lender must be satisfied with your credit score and has to assess the risks, which is not the situation with a cash transaction. In cash deals, there is less paperwork; and time is saved as the process is fast compared to the mortgage process. So, buying a home for cash is hassle-free, risk-free and also helps to secure your rights on the property.

Gives flexibility in house bargaining and saves money

While shopping for home it is obvious to expect a best deal. And, ready cash can give you flexibility to set terms and bargain directly with the home seller. Sometime you can enjoy additional leverages as well. Paying cash also saves you the cost of applying for a loan and getting a certain pre-approved amount. Besides, there are various other areas where you can save some money by showing cash. For instance, you don’t have to bother about paying points if you are not taking out a mortgage. By paying an upfront amount you needn’t have to think about interests and thereby can accumulate a substantial saving. If you take out a mortgage for a 30 year time period, you may end up paying more money as interest than the principal amount of your mortgage; hence over time your savings are considerable.

Eliminates longtime payment, ensuring stress-free retirement

As taking out a 30-year mortgage is becoming the trend, many people are still under debt by the time they retire. As the chance of getting income reduced is high after retirement the mortgage amount may become a burden. These longtime payments can be eliminated by opting for cash payment, which can give you complete rights on your new home and also doesn’t affect your future income.

Keeps you away from lender’s harassments

It is an undeniable fact that debt can certainly take away some of your freedom as you owe money to the lender. Further, you may have to face a lender’s harassments. For instance, homeowners may not be intimated by the lender about the rise in monthly bills on the mortgage, additional charges may be imposed and even forced evictions or foreclosures of the property are a possibility.

Now, let’s take a look at some of the disadvantages of not taking a mortgage.

Will not be able to afford a bigger house

Taking out a mortgage strengthens your financial position and allows you to buy a bigger and a better house or to deck it out the way you like. Hence, many people consider it a wise decision to go for a mortgage if they desire a luxurious house and expect a good income flow in the years to come.

Lose tax benefits

If you take out a mortgage, you can enjoy a tax deduction on the amount of mortgage interest. If you are in high-income tax bracket, you can save a substantial amount of tax by taking out a mortgage.

Enables you to invest and diversify your portfolio

If you have just enough cash to be able to afford a house without a mortgage, you will be left with no cash once the house is purchased. This weakens your financial position as you will not have enough money to take care of financial emergencies. This also means that you will not be able to grab investment opportunities when they arise. By taking out a mortgage, you can ensure you have enough funds to build a sound investment portfolio and feel secure in case of emergencies.

Summary

Ponder over the advantages as well as the drawbacks of purchasing a house with cash in view of your financial position, aspirations from a house and your future financial goals before making any decision.

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