Should I pay cash or get a mortgage?

I cannot tell you how many times I have been asked this question over my real estate career. Of course, the question was raised by those who could afford to pay cash for their home.

In a lot of cases, it was people who had sold their home in areas like California or the northeast, where prices of homes are well above our local markets cost per square foot. They came South and found a real estate gold mine of homes that were similar in square footage to the home they just sold to make their move, but for less money.

So, if you could afford it, would it be better to pay cash or get a mortgage? I don’t mean to disappoint you, but there is not a cut and dry answer to the question, “Should I pay cash or get a mortgage?” There are too many variables involved. Let me name a few.

Your age is certainly one factor. Are you retired or about to retire? Are you or will you be on a fixed or variable income? How long do you plan to live in the area?

Your tax bracket is another factor. Even with my financial background, I still have people argue with me and say, “But Ron, if I get a mortgage, the interest is deductible.” Well… unless you are in a 100% tax bracket, there is still the cost of money.

Also keep in mind, you don’t really own your home until you pay it off, your lender does.

There are some advantages to paying cash for a home. For example, you can save money on closing costs. Those who purchase a home with cash can avoid many of the expenses typically associated with closing on a mortgage. These include loan origination fees, appraisal fees, home inspection fees, termite inspection, prepaid insurance, etc.

In addition, sellers in many cases, will sell for less to an all cash buyer because they knew they can close quickly, and the buyer and seller, doesn’t have to jump all the hurdles a lender throws at them. You will also be saving tens of thousand of dollars over the payment of a mortgage for 30 years.

What are some cost an all cash buyer may be required to pay?

Appraisal, survey, pro-rata taxes, attorney fees, state or local government fees, sometimes called excise or transfer taxes, are your major ones. There may be some other miscellaneous cost involved but nothing like a lender would charge you.

Why should you consider getting a mortgage?

Again, there are many variables to this question. Some investors would tell you to get a mortgage and put the money you were going to use as an “all cash buyer” into more real estate.

For example, if you were planning to put $250,000 into a home as an “all cash buyer,” take $200,000 of that and buy several houses with $20k to $50k down on each home. All of this assumes you can qualify for the additional loan(s) and that you have some property management experience. If not, you can always hire a property manager.

By taking out a mortgage, you are maintaining some liquidity. If paying all cash for a home takes all your saving, you may want to consider a mortgage. Rates today are incredibly low. You can always make more than the minimum payment to pay off the loan sooner, but that is your option.

If you are trying to decide what is the best option for you, cash or mortgage, give us a call at 252-257-4822 and let’s talk, or visit our website at www.cansellnow.com .