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Is It Better To Buy Home Cash If You Can?

If 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.