Whether you’re looking to purchase your first investment property or a home to enjoy with your family, it’s important to understand all of your options in terms of financing.
If you have sufficient funds available to make an all-cash offer, it may certainly be tempting to do so, but make sure you fully understand the benefits and trade-offs that are associated with this type of real estate transaction.
Benefits Of Buying a Property In Cash
Sellers Prefer Cash Offers
First and foremost, making a cash offer for a house could help you get a better deal from the buyer. Since cash buyers don’t need to go through the lengthy process of getting approved for a mortgage, sellers may be more inclined to accept a lower offer in exchange for a quicker transaction.
Cash Purchases Are Completed More Quickly And You’ll Own Your Home Outright
While buyers who are taking out a mortgage tend to need 30-45 days to close, you can take advantage of a quicker closing when you choose to forego a mortgage. Of course, in doing this, you’ll eliminate the need to make monthly mortgage payments as well. For that reason, buying a house with cash means that you’ll never have to worry about losing your home due to inability to pay off a mortgage.
Additionally, by making an all-cash purchase, you’ll be able to eliminate interest expenses, since you won’t be using a mortgage to borrow funds. For this reason alone, buying a house with cash could be extremely tempting for buyers who have enough savings to do so.
Benefits of Taking Out A Mortgage
As with any decision you make, there are always two sides to consider. Although buying a house with cash may be tempting, it’s still important to understand the benefits of applying for a mortgage before you invest all of your savings into a property.
Save Now, Pay Later
The obvious benefit of taking out a mortgage vs paying all cash is the lesser upfront cost; your down payment will inevitably be smaller when you take out a mortgage, as opposed to when you choose to buy a property outright in cash.
In addition, when you finance your home with a mortgage, you’ll have less funds tied up in the property. Therefore, after making your down payment, you may have enough cash leftover to invest in stocks, rather than tying up all of your cash in a home purchase.
Tax-Deductible Interest Payments
While it’s true that you won’t have to pay interest when you purchase a home with cash, you should also keep in mind that, when you do have a mortgage, you interest payments will likely be tax-deductible. Though this information alone should not influence your decision, it’s always wise to familiarize yourself with any tax deductions that may apply to your situation.
A home purchase is a long-term investment, and nobody knows for certain what their future may hold. In the event that you acquire significant debt at some point, a homestead exemption could help ease your financial situation, however, this is not an option unless you have a mortgage.
Weighing Your Options
As you can see, whether you buy a house with cash or take out a mortgage loan, there are plenty of factors to consider before you make your decision. The best course of action is to take some time considering both options, talk through your thoughts with people you trust, and make sure you’re confident in whichever choice you make.
Looking To Purchase A Home In The Bay Area?
At Intempus, we pride ourselves on top-rated property management and real estate services throughout the Bay Area. Our clients continually leave us positive feedback on our Yelp page, whether we’ve helped them to purchase a house, rent a home, or maintain an investment property.
If you’re considering buying a house in the Bay Area soon, please contact our team today for assistance!