Should I pay all cash, or get a nicer home with a small loan to cover the difference?

Here in the Lewiston-Auburn real estate market, we are starting to see more and more home buyers willing and able to make the purchase of their new home with cash.

Buying a home with cash, instead of obtaining a mortgage can simplify the closing process, shorten the time needed for closing, and offer the buyer some leverage with sellers who want or need a quick closing.

Many of these cash buyers are realizing the value of real estate as an investment and choose to consider homes slightly above the amount of their cash reserves, allowing them to purchase a home with additional amenities.  

They decide to put 75-80% down and then obtain a small loan for the balance needed to buy the home.

Before moving forward with an 80% cash/20% loan home purchase, home buyers should consider their entire financial portfolio and decide if perhaps they are missing out on one of the best investment opportunities in the current economy...real estate.  

I say this with the caveat that I am not a financial analyst.  However, I am very familiar with the real estate investment opportunities here in the Lewiston-Auburn Maine area.

I understand the attraction of a very small monthly mortgage payment, and encourage everyone purchasing a home to avoid stretching themselves too thin.  Buying "below your means" is a good long term strategy and can help protect you down the road if your situation changes.

However, for those with high enough income levels and cash reserves to offer a buffer, obtaining a larger mortgage on their primary residence and then leveraging the additional cash for a down payment on one or more investment properties may be the way to go.  With historically low interest rates, carefully selected investment properties can provide a much higher rate of return over the long term than the cost of the loan.

If you are a cash buyer, please do talk with your financial advisor about your investment portfolio and the potential benefits of adding an investment property with your cash reserves rather than putting it all into your primary residence.  Then give me a call and I can help you analyze potential properties.

For some, the answer may very well be that a cash purchase is their best choice.  For others however, investing now may reap huge rewards in the future.

Both prices and interest rates will continue to edge upwards and this opportunity may not last, so be sure to consider all of your options.