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Financing Cash vs. Mortgage

When you are buying your home, does it matter whether you pay with cash or a mortgage? After all, you’re paying for your Arizona luxury home either way, right? Then there’s the question of debt. Is it better to sink as much cash as possible into your home to avoid a mortgage? It’s never too early to consider how you will pay for your dream home. Cash cuts costs and wins bidding wars, but mortgages can also make sense.

Paying with cash
  • Makes your purchase more attractive to the sellers, particularly in a competitive market. They don’t have to worry about a buyer backing out because financing was denied.
  • Eliminates paying interest on the loan plus many closing costs including appraisal origination fees, mortgage origination fees or other fees charged by lenders to assess buyers.
  • Offers the flexibility to close on your new luxury home faster, if desired, than one requiring financing. This could be attractive to the seller as well.
  • Might just yield some bargaining power on the asking price, possibly a cash discount.
  • Allows a homeowner to sell the house more easily – even at a loss – regardless of market conditions, since a cash buyer’s home is not leveraged.

Obtaining financing (mortgage)
Financing also has its benefits.
  • While you may have the ability to pay cash for your home, consider whether it will tie your hands down the road.
  • Liquidity is important, especially when it comes to your new home possibly requiring major renovations or repairs. A home equity mortgage might just factor in, so it’s never too early to keep in mind your credit score, what your home’s worth is projected to be, and any other factors that determine mortgage approval.
  • Selling your home bought with cash might also present challenges if it was a financial stretch to buy it. Consider the need for sufficient cash reserves to put down a deposit on a new home.
  • In most cases, mortgage interest payments are tax deductible. The reduced tax obligation may be an advantageous way to finance the house.
  • Saving on mortgage interest by paying cash might not be financially prudent. Depending on how the Stock Market is doing, you could be making less by paying cash than that money might have earned had you taken out a mortgage and invested the cash you didn't spend on your house in the market.
  • Your mortgage company can handle payment of county, school and other property-related taxes. If you own your house outright, you will be responsible for making tax payments on your own.
What’s best?
When considering which option makes the most sense, the best advice is to opt for the choice that gives you the greatest financial advantage. Consult your financial advisor or tax professional to determine the greater return on your investment. For protection of your best interests throughout the luxury home buying process, you’ve already found it at Exclusive Arizona Buyers Agents. Our foundation is built on protecting you, the luxury home buyer, with the knowledge and experience of our team to help you make informed and prudent decisions.
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