It is a dream of many homeowners to pay off their mortgage and own their home without any loan debt. It’s another thing to have the money to pay cash for your home and own it free and clear from day one. Very few people may have the resources to pay cash for a home, but even if you do it may not be in your best interest to do so. Let’s explore why a cash purchase may not be your best option.
The biggest potential disadvantage of paying cash for your home is now that investment is not as easy to get back if needed. If you are self-employed and have had a few good years, you might be tempted to buy a new home for cash while you have money available. The problems start if you have a need for that money later when your economic status is less viable. You may find that mortgage investors won’t be amenable to giving you back that money as a new mortgage or home equity loan. Maintaining a mortgage with a steady payment can help you get through the boom and bust times of being your own boss, and you can put the excess money into investments easier to liquidate as needed.
In the interest of disclosure, let’s discuss getting a mortgage to save money on your taxes. People might tell you that having a mortgage is a necessity because you need it to take a tax deduction each year on your taxes. In reality, borrowing money to gain a slight tax advantage is not good economic thinking, and you or your accountant should run the numbers before deciding that a mortgage is a good idea because of the tax implications. Another reason to run the numbers is the rate of return you get from using cash for a home. The effective interest rate is the mortgage loan rate you avoid by using cash. If current mortgage rates are 3 percent, you are getting that interest rate if you use cash to buy a home. If you can put the money elsewhere at a higher interest rate, then you should do so because the cash purchase is not the best way to invest that money. And as noted above, keeping your finances more liquid may be an advantage versus using them up with a cash home purchase.
If you have a property with equity and less than perfect credit, you need to talk with us at AHL Hard Money Loans. Our investors are looking for people like you who need money quickly and have real estate equity to back up your money needs. Our processing is fast and much less cumbersome than traditional mortgage investors. Give us a call today to discuss your hard money needs, because we are always here to help you.