Contemplating on buying a home? Cash or Loan?
A home buyer’s first predicament is to decide whether to obtain a loan or having it cash on purchasing a property. While some are fortunate to afford paying full by cash, there are still several matters that we must take into consideration to put your money into a more intelligent use.
Paying cash is undeniably the fastest way to close a deal. Sellers would go for buyers using cash as their financing method because it’s an easy money and you don’t have to worry on the possibilities of being rejected on a buyer’s loan application.
But on the buyer’s perspective, will it be the same? If you have enough money available to put off the sale then you can surely get away from the hustles and bustles of paper works and frustrating loan processes. Yes – you can walk away from paying monthly loans and its interest and most of all – saving time but is it a good idea to invest in all your savings for a property. Before jumping into conclusions, first you have to consider the if you still have enough money to cover the after sales expenses like possible renovation costs or repairs that needed to be done in your house. This means that your savings is most likely being tied up to one asset, leaving you less option to invest to another with less money left on your account.
Cash is great however, you need to consider other factors such as liquidity, risk tolerance and overall financial plans. This financial decision also affects your emergency fund and any other unanticipated expenses such as losses due to illness, accidents or weather related incidents that may damage your property. These are unexpected events that one must have enough cash availability to be able to respond. You also have to consider what your financial goals are and how will this impact your ability to achieve your other goals. But again, if you are confident that you have the stability and security you need when it comes to your finances then paying cash is the easiest and fastest way to go.
On the other hand, if you are struggling to put up cash or that you can afford but hesitant to take the risk of sacrificing your entire savings then loan financing is for you. Getting a mortgage provides you financial flexibility. You can qualify for a 15 or 30 year fixed mortgage with a down payment of around 20%. You can save money on interest and secure your emergency fund. If you are considering an opportunity cost which turning your asset as investment, you have better chances to leverage it. There are also other benefits in taking a mortgage like tax advantages aside from a forced savings. Surely it means you’ll never get rid of the monthly payments but if you then look at the brighter side and consider how your investment would be 10-20 years from now in the market.
Again, it all depends on the buyer’s capacity. It is a personal decision and whatever it is, one might work for you while for other’s may not. There are advantages and disadvantages in both financing methods. It is highly recommended that you take time to develop a financial plan that takes consideration in various situations or scenarios that may affect the outcome of your decision.