Should you pay cash for your first home?
Should you pay cash for your first home? Is that an option for you? Nice.
For most of us, we put down 5, 10 or 20 percent when we buy a home, and finance the rest with a mortgage loan.
What if you had the money, in cash, to buy?
Taking out a loan after you pay cash for a property is a great way to get a jump on your competition if that strategy is an option. This process is called “delayed purchase financing.”
There are a few benefits when you do this. Most importantly, if you obtain a mortgage within 90 days of your escrow closing date, you’ll be eligible for the mortgage interest deduction. Additionally, you may want to regain some liquidity and stash the money in investments that have higher returns than what you pay in mortgage interest. And of course, you might also be able to use the funds to purchase another property.
With only a short time to go between now and the end of the year, you may be able to get yourself some negotiating power by paying cash for a property. Sellers eager to close by December 31st may be more flexible on price, particularly if there’s not much competition for their properties.
In the end, the interest deductions may be worth thousands of dollars over the life of the loan. So you may want to consider getting preapproved for a loan, even if you do have the cash to make your purchase now.
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Question: I am currently 21 years old and shortly will be leaving college. My question is somewhat unusual — should I purchase a house in full if I have enough cash to do so? Or should I finance the house, placing a minimal down payment and investing the rest of my money elsewhere to cover the cost of my loan?
– Ryan J. Seay, San Jose, Cali
Well, it seems logical that you would pay all cash, then, right?
Maybe. However, if a mortgage loan is costing you 6%, yet investments are offering you an 8% return, a case could be made for financing at least some of your home purchase.
Plus, having all your equity tied up in your home is not a good thing, necessarily, since it’s hard to get money out, right away.
Of course, if you have $500,000 laying around, I’m going to guess you have money just pouring out of your pockets, no matter what.
Complete article: A Young Buyer Asks: Should I Purchase My House Outright? – By June Fletcher, The Real Estate Journal
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