Should Home Buyers Buy a Property with Cash?

Talking to your home buyer about purchasing with cash.

Is your home buyer thinking about purchasing a property with cash? If so, make sure that they understand the implications of purchasing with cash, and the pitfalls that they could encounter. Although paying cash is still a far-fetched dream for many people, it’s becoming more common in the real estate market. Buyers should be mindful that it may not always be the right option.  Here’s what buyers should know.

Mortgage qualification

If you have enough cash to purchase a home outright, lenders will likely view you favourably for mortgage options. With a down payment of 20 percent or more, you don’t have to worry about mortgage insurance when it comes to a conventional loan, and you’re likely to receive a low-interest rate.

Loss of liquidity

Generally, it’s not wise to purchase a home with cash if you have just enough liquidity to pay for it. Cash is important to have on hand for unexpected disasters, such as a new roof or a medical emergency. You need to have some sort of a backup in case you lose your income.

Tax breaks

All homeowners with a mortgage receive a tax break on the interest paid to the lender. The interest you accrue when you pay on the loan is huge. If you choose to pay for your home in cash, you miss out on this tax break. 

Some buyers don’t realize they can close with cash and refinance right away to get a portion of their cash back in hand, while still keeping a possible interest deduction with financing.

Contact Dean Rathbun when you’re looking to secure the right mortgage for your needs. We work with your credit score and financial picture to ensure that you lock in the right home loan to land that house of your dreams. Give us a call to get started.