Is It Better To Buy Home Cash
If You Can?
you are thinking about purchasing a home and have been good at saving money and have a large amount of cash
stashed away, you may wonder if you should pay cash for the home just because you can. At a first glance, paying cash for your house may seem like the very
best choice, but it is important to look at a few things to determine whether it is actually more financially
sound to keep your money where it is in a high-interest bearing account.
If you are currently
earning six or seven percent on your investments and the low interest rates on a home loan come in at four
percent, then you would actually be better off taking out a home loan at the low interest rate and keeping your
cash in a place where it is earning more. You could certainly pay
the mortgage off early by making extra payments, and you may even be able to make a large principal reduction
payment if you would like to pay off a portion of the loan. This
way, you are effectively earning more than you are spending by keeping your money where it is.
If purchasing a home
will leave your bank account empty, then you may want to consider a home loan since you will still have to pay
the property taxes and homeowner's insurance. Remember that there
will always be certain kinds of maintenance and repairs that need to be done, and if you used all of your cash
for the home, you won't be able to make those payments. If you have
poor credit but plenty of cash, you could easily make a large down payment on a bad credit mortgage and have a
loan with a relatively low interest rate without emptying your reserves.
If you decide to put
most of your cash into your home, you can get it back out when you need it by obtaining a cash-out mortgage
refinance. Another method of mortgage refinancing that provides you
with some cash is a Home Equity Line Of Credit, which allows you to borrow against your equity but only use what
you need, like a revolving credit account at a low rate.
Although there are times
when paying cash for a home could be the best option, it is wise to remember that if you use all your cash for
the home you may not be able to pay other bills or home related expenses. You may decide to opt for one of the many loan products available and use your
cash for other things.