Most home buyers secure a mortgage when they purchase their homes, but not all. If you have the money to buy a house with cash, there are some benefits to it, not least of which, is not having to make mortgage payments. On the other hand, having a mortgage can actually make you money in the long run. Make sure you understand the pros and cons of paying cash for a house if it’s something you’re considering.
Life Without PaymentsWithout a mortgage, you don’t have monthly payments. That alone is reason enough for some people to purchase their houses with cash. With no mortgage payment to make, you might have more disposable income every month. Having lower monthly expenses included in your personal budget might leave you free to take a different job, go back to school, or even take some time off to travel. It also takes risk out of your life, since you don’t have to worry about missing payments and being foreclosed upon. These psychological and lifestyle benefits related to not having a monthly payment trump many other concerns for some people.
Credit ImpactBuying a house with cash lets you avoid the hassle of the mortgage process. You don’t have to share your personal financial information, have your credit score checked, hope the appraiser agrees with your purchase price, or wait for the lender to approve your loan. Since you won’t have any money tied up in monthly mortgage payments and since there’s no chance of a late payment, you may have more flexibility to apply for other types of credit. On the other hand, when you don’t have a mortgage, you can’t benefit from its potential contributions related to your personal credit. Having a long history of payments on a large account can positively impact credit scores.
Investment StrategyNot paying interest on a mortgage might seem like a good idea – your parents probably told you that “a penny saved is a penny earned” – but it has a hidden cost. When you buy a house for cash, you tie up your money in the house instead of in other investments. If your money could earn more in other investments than you would pay in mortgage interest, you could actually come out behind by paying cash.
Whether you’re looking to qualify for your first home mortgage or you’re a seasoned real-estate investor, research the market you’re looking to purchase your home in to help determine if the investment is right for you. You wouldn’t want to pay cash or agree to a 30-year loan for a property you’re not happy with. After all, home is where the heart is.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc. © 2013 ConsumerInfo.com, Inc. All rights reserved.