Buying With Cash Vs. Getting a Mortgage

Guest Writer: Sally Norton

When it comes to buying a new home, there are two main ways you can handle the financing. Today, we will take a deeper dive into the differences between buying with cash vs. getting a mortgage. Hopefully, this article will clear up any uncertainties you might have had and help you choose the option that is the best fit for your financial situation.
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The basics of cash vs. getting a mortgage
If you ask people what they think is better, no one will tell you that having a massive debt is a good thing. However, that doesn’t mean that it’s an open and shut case. There are many nuances you need to consider before making the best financial decision.
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Funding everything with cash may sound like an unattainable dream for some. Honestly, most people will never have enough money set aside to fully buy a house just from that. Consider yourself lucky if you have that as an option. Despite being able to afford it, purchasing a home for a large amount of cash might not represent the best option. Let’s say you can’t afford to buy the home outright, but you do have a substantial amount in cash. Even sinking as much money as you can into the down payment to lower the mortgage rates will have its downsides as well.

Putting all of your cash savings into a home is a huge commitment.

On the other hand, you need to consider how long it will take you to pay off your mortgage and what kind of a burden it will leave on your finances. Getting a mortgage isn’t the same in your 20s and your 50s. If you are buying your first home a little later in life, your savings will hopefully be better as well. To better understand your options, let's look at buying with cash vs. getting a mortgage and the pros and cons of each of these approaches.

Buying a home with cash

Pros of buying with cash:

• You don’t have to deal with a mortgage. Talk to your friends who have mortgages and ask them if they ever feel anxious about having to pay off that much money. By not going into debt, you will be sleeping like a baby.
• Avoid additional mortgage fees. In case you weren't aware, yes, there are some added fees like mortgage origination, appraisal, and lender charges. Paying with cash allows you to save money by not even having to face these expenses.
• You will pay less for the home. Sellers will be more inclined to close the deal and sign off on your purchase if you are a cash buyer. You can use this to your advantage by trying to lower their asking price.
• Close the sale faster. Since you don't have to wait for the mortgage to get approved, you will move more quickly on the house you want.
  
  

Cons of buying with cash:

• You may lose possible tax benefits. That’s right, having a mortgage can provide you with a bit of financial security and tax benefits.
• Your money will be tied up. Not having access to spare money if you need it can be a big deal. An unplanned emergency can pop up, which you could easily handle if you didn’t invest everything into the house. The same thing goes for home renovations. It’s great that you could afford a house, but what about renovating and adding a few home improvements? Luckily, there are a few options available, and you can look into taking out a home equity loan.
• Not everyone has enough available funds. Realistically speaking, many people look to marriage and pooling their savings to buy a house together as their best option. Another common situation where people have the money for a cash purchase is when they inherit a large sum or a property they plan to sell.

Couples often decide to buy a home together if they are getting married.

​Getting a mortgage 
      
Pros of getting a mortgage:

• You don’t need a large sum of money to buy a home. Simply put, this option is probably the most attainable for the average buyer. You’ve got enough money to cover the down payment, and you will take care of the rest in the years to come. That’s why most people consider buying a home as an investment.
• It can offer you tax benefits. Although tax laws can differ from state to state, homeowners should itemize their deductions.
• You can invest in other things. With liquid assets, you can freely pursue other ventures. Most people realize that owning a home is great, but it doesn’t necessarily have the greatest return on investment.
• It can improve your credit score. Continuously making payments on time will improve your credit score in the long run.
  
  

Cons of getting a mortgage

• Monthly mortgage payments. Need we say more? Having to deal with a mortgage can put a strain on your household budget for years to come. Yet, it’s the only way that most people can afford to buy a house.
• ​Still need savings for a down payment. Some savings will still be required to purchase the home and cover the additional closing costs.

If you get a mortgage, you will need to deal with monthly payments.

​Drawing conclusions from buying with cash vs. getting a mortgage?

Paying with cash is obviously going to be more attractive to sellers. They won't need to worry about buyers being declined for a loan. Also, sellers usually expect the sale to wrap up faster if they are dealing with a cash buyer. On the other hand, buyers can use cash payment as a negotiation tool to lower the price.
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Depending on your other finances, getting a mortgage can protect you from creditors. For example, in Florida, homes are exempt from certain creditors, making the mortgage a safety net. Of course, this can depend on homestead exemption laws and how much of the mortgage you have paid off.

Whichever route you choose, you will need to keep in mind that you'll be facing additional expenses. Besides the closing costs, which we already mentioned, most people forget about the costs of moving. Besides being costly, moving is also pretty stressful. And you can make it much less overwhelming if you use the most efficient way to pack and hire a moving company. In fact, getting professional services is highly recommended, as DIY relocations can end up costing more.

The bottom line
As you have seen, there are pros and cons to both sides, and it’s not easy to determine a clear winner in buying with cash vs. getting a mortgage. Carefully consider your needs, current situation, and your financing options to make the decision that’s best for you.

Sally Norton is a freelance copywriter based out of Miami, with a flare for writing optimized articles. Her experience is focused on moving, travel, real estate and overall guides to help people with some challenging projects and endeavors. In her spare time, Sally enjoys yoga and walks with her dogs - Mane & Rex.