Should I Pay Cash for a House?

Posted by Florida Realty Marketplace on Wednesday, July 22nd, 2020 at 8:00am

Should I Pay Cash for a HouseWhen it comes to buying a home, especially a first home, most people take out a mortgage. They simply don’t have enough saved up to buy the house outright. Thankfully, you don't need much cash at all to buy a home. However, when thinking of buying a second home it may be a tough choice between paying cash or getting a mortgage. If you’re looking at some of the great homes for sale in Davenport, FL and realize you can pay cash for one, you may be very excited. Living mortgage-free is, after all, a goal many people have. Should you pay cash for a home? The answer, surprisingly, isn’t as easy as it seems.

Do You Need This Money For Anything Else?

One of the most important factors to consider is whether or not you can truly afford to invest that much of your savings. Will you have any emergency funds left over? Do you have any money to make repairs or any home renovations? Will you be able to quickly build up your savings if you don’t have a mortgage payment? 

One of the scary things that many baby boomers are facing is that their wealth is tied up in their home and accessing those funds in an emergency isn't straightforward.   Depending on your stage of life you may find that a steady mortgage payment is better for you so that you can keep your nest egg safe.

Are There Better Investments?

Is it worth tying up most of your money in a single piece of real estate? It truly depends. Without any sort of housing payment, you can more easily build up your wealth. However, what if you took that money and invested it? Mutual funds do tend to appreciate more than housing prices. For example, it’s not uncommon to see an appreciation of 8% to 10% on a mutual fund, but the average appreciation of a home in Florida in 2019 was 3.6%. If you’re investing in a home and plan to sell it later, you may find that you can make more through other options. 

In order to improve this percentage, you'll need to rent out the home or add value to increase the value.   Often, getting a mortgage and investing may be the better move.

No Job, No Problem

One reason cash is a popular way to go is that there are no mortgage requirements.  Our next point (the discount) is largely based on this reason.  With no mortgage, there is no need to have a job or documented income.   It may sound odd, but if you're retired then chances are you might not be generating an actual income.    Another scenario that plays out is with business owners who write off a lot on their taxes.  Mortgages are based on taxable income, and if you are claiming you made $0 last year, you won't be buying a home with a mortgage. 

The Big Reason To Pay Cash Is For The Discount

There is a saying that "cash is king".  When a buyer offers cash they are telling the seller that there are no hassles.  Cash offers close because they aren't dependent on the buyer's job, the current financial climate, or even an appraisal. 

Because of this, paying cash for a home can save you money. Some sellers may take an all-cash offer because it typically takes less time to close. There is no lender to appease with paperwork and a home appraisal, so closing doesn’t take the standard 30 days. Some sellers will accept a lower offer that is all-cash just to get the property sold. Of course, this depends on the state of the market. You’ll be more likely to get a lower offer accepted during a buyer’s market when homes aren’t selling as well.

Luckily, You Can Change Your Mind

There is a certain popular radio show host that likes to tell people to live debt free.   This is wonderful advice but for most people it's a bit unrealistic.  However, should you take this advice and buy a home for sale in Haines City for cash, for example, you can change your mind.   Once you own the home you can do a cash out refinance and pull the money.  The kicker here is that you'll still have to qualify like you would with a home purchase.  In other words, you need to have a job.   This is a one of the big surprises for some retirees. 

Likewise, you could get a mortgage on a home and then later decide to pay it off.   This one will likely cost you because you'll miss out on the discount and then have to pay fees to a mortgage company.  Sometimes having peace of mind is worth it though. 

Need More Help?

If you’re ready to start looking for a great home in the Davenport area, we’re here to help. The team at Florida Realty Marketplace can help you find a great home and assist you in deciding if paying cash is the right move. Contact us today!

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