It’s a tempting scenario: after succeeding in gathering a substantial trove of cash, you find your St. Cloud dream house—and sit down to write out a check for the entire agreed-upon sum, buying it outright! The future looks like ultra-smooth sailing, financially speaking. No mortgage payment. No interest. No monthly insurance set-aside or property tax pre-payment shunted into some account the mortgage company insists upon. And you really own the place yourself, with no strings attached!
Although there are definite plusses to buying your St. Cloud dream house with cash, there are at least three opposing reasons why it would be prudent to at least think twice before writing that monster check:
Taxes! The federal tax reform passed in 2017 may limit the interest tax deduction to $10,000, but that’s still a hefty plus come tax time—one that cash buyers might miss. It has the effect of reducing a mortgage’s bottom line cost.
Diversification. Investment counselors preach the advantages of diversification. If buying your St. Cloud property with cash means funneling the preponderance of your liquid assets into that one investment, it limits your freedom to explore all other avenues. If a business opportunity beckons, you might wind up borrowing against your home equity—in which case you could have saved the trouble with a home loan in the first place!
Leveraging your position. Even if you don’t make an all-cash offer, that solid bank balance will contribute mightily to the way you will be viewed by lenders. The home loan terms you are offered should reflect that substantial financial standing. When historically low interest rates are offered, the financial consequences they embody are worth considering.
Of course, there are also some considerable advantages to buying your St. Cloud dream house for cash. Chief among them is that many St. Cloud sellers may choose cash offers over competing bids that require lender approval.
Whether you are looking to buy or sell, one aspect of what I bring clients is my professional experience in helping structure and evaluate successful offers. Call me!
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