House buying as a young adult is one of the biggest (and smartest) investments you can make.
When you want to buy a house, you may run into a few different options for financing your purchase.
Are thinking of buying a house in cash vs mortgage? Which option is better for you?
Read on to learn more about financing your first home with cash vs mortgage.
What Are the Differences Between Buying a House in Cash vs Mortgage?
There are a few key differences between buying a house in cash and taking out a mortgage. Here are the advantages and disadvantages of both.
The Pros and Cons of Buying a House in Cash
When you’re thinking of buying a house using cash. Here’s what you should expect:
1. Faster Closing of Deals
Perhaps the most obvious difference is that when you buy a house in cash, the deal can often close faster since there are no loan approval processes to go through.
2. Requires a Larger Sum of Money
Buying a house in cash requires a larger sum of money upfront. This can be difficult to come up with if you don’t have savings or other assets to draw from.
3. Lower Value if the Housing Market Declines
If the housing market declines, cash buyers will see the value of their investment decrease, while those with a mortgage will be able to sell the property for what they owe on the loan.
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The Pros and Cons of Buying a House in Mortgage
If you’re thinking of using a mortgage. Here’s what you should prepare yourself for:
1. Smaller Amount of Required Money
With a mortgage, you only need a small down payment, typically around 5% of the purchase price. So, if you’re looking to buy a $200,000 home, you would need $10,000 for a down payment with a mortgage, but $200,000 if you were buying in cash.
2. Monthly Mortgage Payments
Mortgage loans are typically repaid over a period of 15-30 years, meaning you’ll make monthly mortgage payments to your lender for the duration of the loan.
These monthly payments will include interest and principal, and may also include escrow payments for property taxes and homeowners insurance. When you buy a house with cash, you’ll avoid paying interest and will own your home free and clear once the purchase is complete. However, you’ll still be responsible for paying property taxes and insurance.
3. You Can Sell for More if the Housing Market Declines
If the housing market declines, you may be able to sell your house for more if you have a mortgage than if you bought in cash. This is because you can often negotiate a lower price on your mortgage.
Which One Is Right for You: Buying a House in Cash or Mortgage?
If you’re deciding between buying a house in cash vs mortgage, it’s important to understand the key differences between the two options. Paying in cash means you won’t have a monthly mortgage payment. Additionally, you won’t have to worry about incurring interest charges on a mortgage, which can save you money in the long run.
Of course, there are some drawbacks to paying for a house in cash, such as having to come up with a large sum of money upfront. Ultimately, the best option for you will depend on your personal financial situation.
Did this article help you understand the differences between buying a house in cash vs mortgage? Keep reading our blog for other helpful topics!