When it comes to buying a home in a hot real estate market, sometimes cash can net you a lower price than a mortgage. So, if you’ve just sold your home and are looking to buy a new one with cash or are otherwise planning your estate, here are some things to remember.
Reasons to buy with cash:
As an empty nester or retiree looking to downsize, you often have cash from the sale of your larger home to purchase a new home. This allows you to choose a smaller home, pay cash, and possibly have money left over. Or, you can buy into a better community for retiring. So while you may end up with a smaller home, the amenities more than make up the difference.
Sometimes, you want to gift a home to your children as a wedding gift, or as part of your estate planning. After all, homeownership is part of the American dream. However, gifting only a down payment may pressure your loved ones to purchase a home when they are not ready to be homeowners. A better option for them would be to purchase a home for them with all cash. The home is paid-for and their obligation would extend only to yearly taxes and insurance, but not the heavy burden of a mortgage. A paid-for starter house protects them from the ups and downs of the market as well, and gives them a basis for a mortgage when the time is right for them.
Investment property that is completely paid for can be a “cash cow” for your retirement. The ongoing income from a rental that does not have a mortgage can make your retirement a little more comfortable, and is less problematic in probate than properties with mortgages would be.
Reasons to have a mortgage:
If you have a financial instrument that might give you a higher rate of return than the mortgage will cost you, it might make more sense for you to invest your cash in the higher return and to take out a low cost mortgage on the property.
If you need to improve your credit report, it might be better for you to take a mortgage. This type of “good debt” can improve your credit score and make it easier to borrow money for other reasons.
Additionally, there are tax benefits from holding a mortgage that, depending on your financial situation, may be more beneficial than owning the home free and clear. Of course, before you make this decision you should check with your tax accountant or financial advisor.
Negotiating with cash:
When you find the perfect house and you’re ready to make an offer, don’t start with the “all cash” offer. If the sellers know that you are able to pay cash for their asking price, they will be less willing to negotiate with you. Let your professional real estate agent help you determine the best time to reveal your cards. We know the right time to offer cash to get the seller to agree to your offer. Call us today and we can get started finding the perfect home for you and negotiating the best offer for your needs.