A lot of people have been able to set aside enough cash to buy a home without relying on a mortgage loan. But is doing so a good idea? The answer is different for every person since much depends on the homebuyer\’s current situation as well as his or her personal goals. Paying cash for a house is an ideal solution for many people. Others would be better served seeking a mortgage loan.

This article will help you to decide whether you should purchase your next house with cash or to look for financing. First, we\’ll approach the issue from the seller\’s perspective. Then, we\’ll go through the pros and cons from the buyer\’s point of view.

Understanding The Seller\’s Point Of View

Most sellers prefer a cash purchase. If the buyer pays cash, there is no risk that the deal will fall through as a result of a problem with the buyer\’s lender. Myriad financing-related details can derail a transaction at the last moment.

Another reason is that escrow typically closes much faster. Mortgage lenders routinely hold up transactions for thirty days or more. With a cash purchase, escrow may close in as little as two weeks.

Now, let\’s take a look at the issue from the homebuyer\’s perspective…

Pro #1 – No Need For A Credit Check

The buyer\’s credit history plays a key role in the likelihood that he or she will be able to get a loan with a reasonable interest rate. If the person\’s FICO score is low, many lenders will either refuse to extend financing, or only do so with a high rate attached. When a house is purchased outright (i.e. for cash), the homebuyer\’s credit is not a factor.

Pro #2 – Ups And Downs Of The Real Estate Market Are Irrelevant

Unless the buyer is planning to sell a house soon after buying it, changes in the real estate market will not matter. Once the home has been purchased, the new owner can disregard price variations.

Pro #3 – No Monthly Mortgage Payment

Paying cash for a home also eliminates the mortgage payment. This can \”add\” $1,000 to $2,500 a month to the homebuyer\’s monthly income. Having said that, it is important for the buyer to take into account property taxes as well as ongoing maintenance and repairs.

Pro #4 – Buy A Home At A Lower Price

Recall from earlier that sellers prefer cash transactions since they remove many of the problems that might otherwise ruin – or, at least postpone – a purchase. This means they are often willing to lower their asking prices in order to work with buyers paying cash. In a buyer\’s market, the homebuyer can often negotiate a particularly good deal. In a seller\’s market, the purchase offer he or she submits may stand above those submitted by other bidders.

Con #1 – No Investment Leverage

A potential downside of paying cash for a house is that the buyer will not enjoy the same amount of leverage he or she would when financing the purchase. If the price of the home increases by 10 percent, so too does the return on the buyer\’s investment. When the home is purchased with a loan, a 10 percent increase in value translates into a far greater return.

Con #2 – No Mortgage Interest Deduction

Homeowners with mortgage payments are able to deduct the amount of interest they pay from their taxable income. Since buying a house with cash eliminates the mortgage payment, doing so also eliminates the tax deduction.

Con #3 – Less Liquidity

Paying cash for a house means the buyer will not have easy access to the funds. Although a loan can be taken on the equity, the process of securing the loan is not as easy as withdrawing the cash from a bank or investment account. The funds are less liquid.

A house represents one of the largest investments most people will make during their lives. If you are considering buying one with cash, review the advantages and drawbacks discussed above to ensure you make the right decision.

Check out www.ValleyFarmsandLand.com for more information.

Check out http://www.valleyfarmsandland.com for more information.

Author Bio: Check out www.ValleyFarmsandLand.com for more information.

Category: Real Estate
Keywords: Real Estate, Home, Morgage, Advice, Own, Family