Financial Options When Buying a Home

Cash vs. Mortgage: An Overview

Everywhere you turn, you hear how bad it is to carry debt. So naturally, it's logical to think that buying a home with cash—or sinking as much cash as possible into your home to avoid the massive debt associated with a mortgage—is the smartest choice for your financial health.

But there's a lot to consider when contemplating purchasing a home outright versus financing it. Here are some of the major differences between using cash and taking out a mortgage to buy a home.

KEY TAKEAWAYS

  • Paying cash for a home means you won't have to pay interest on a loan and any closing costs.
  • Paying off your mortgage (or not having one in the first place) provides a significant emotional relief that shouldn't be discounted.
  • Investing your cash in the stock market, especially in a tax-advantaged account, will leave you with a higher net worth than paying off your mortgage faster.
  • Obtaining a mortgage is a crucial step in purchasing your first home, and there are several factors for choosing the best one.
  • Lenders will evaluate your creditworthiness and your ability to repay based on your income, assets, debts, and credit history.
  • As you choose a mortgage, you’ll have to decide between a fixed or floating rate, the number of years to pay off your mortgage, and the size of your down payment.
  • Conventional loans are mortgages that the government does not insure.
  • Depending on your circumstances, you may be eligible for more favorable terms through a Federal Housing Administration (FHA) loan, a U.S. Department of Veterans Affairs (VA) loan, or another type of government-guaranteed loan.
  • As a first-time homebuyer, you may be eligible for special programs that allow you to access deeply discounted homes and put low or no money down.

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