Why paying all cash for a house might not be a smart move
As consumers enter the housing market this summer, many may be disappointed to find limited options. Low inventory has been a theme in many parts of the U.S. this year, inciting bidding wars, increasing home prices and frustrated homebuyers.
In a market such as this, homebuyers can easily feel like they have little control over their future home purchase. Fortunately, there are several techniques consumers can employ to tip the scales in their favor.
One strategy is to put forward more cash; a bigger down payment is attractive to the seller, and will lower your monthly mortgage payments. Some may feel tempted to take this strategy one step further and opt for the all-cash purchase.
For those who can afford to pay for a house outright, it’s likely that offer will pique the seller’s attention. Plus, they will enjoy owning a home with no mortgage payments. However, this strategy may not be as smart as one might think. In fact, there are several reasons a consumer may benefit from taking the loan rather than paying all cash.
Keep your cash
Cash is king – so why would you want to spend it all at once? By taking out a mortgage, you’ll likely leave a hefty sum to continue accruing interest in your bank account. This money can be used for your next major purchase or on an emergency.
Or, you can invest your leftover funds elsewhere. Consider buying stocks, bonds or mutual funds to grow your wealth. If you already have your money in high-performing investments, this is all the more reason to keep it there rather than taking it out for the home purchase.
You qualify for an affordable residential mortgage
If you’re considering paying all-cash for a house, chances are high that a lender will loan you the money for a low rate, U.S. News & World Report pointed out. Rates right now are close to the 4% mark, down from the start of the year, when they were closer to 4.2%, according to data from Freddie Mac.
Home values fluctuate
Few houses on the market and a plethora of buyers can create an atmosphere that might benefit the seller, but frustrate consumers. According to the National Association of Realtors, prices were rising at a clip of 6.8% as of March. Though today’s tight market is encouraging higher bids, this won’t always be the case. Consider what the market will look like down the road when you decide it’s time to sell the house. There’s no guarantee that it’ll be valued at or above the price you pay today. To protect your investment, it might be a good idea to shy away from putting up all your cash, U.S. News & World Report noted.
Everyone loves a tax break
Tax season is over for the year, and few people are sad to see it go. In fact, you may not want to give taxes a second thought until W2s are sent out again. However, it’s important to consider how your actions throughout the year will affect your tax return.
Every mortgage borrower is eligible for a healthy tax break in the form of a mortgage interest deduction. Depending on your loan term, amount and interest rate, you could increase your tax return by several thousand dollars. Time Money pointed out that many homeowners enjoy returns of $10,000 or more.
Paying all cash for a home may be a good option for some people. After all, it is a good way to enter homeownership debt-free and will likely put you ahead of at least some of the homebuying competition. However, there are downsides to this strategy as well. To learn more about the pros and cons of this transaction, talk to the lenders at Academy Mortgage.
Academy Mortgage is one of the top independent purchase lenders in the country as ranked in the 2015 CoreLogic Marketrac Report. Visit www.academymortgage.com to find a loan, get a rate, or calculate your payment today.