Pay cash is a great idea when buying a Home! Or is it....
Here are some things to consider when paying in full or putting a large down payment
1) There are 100% financing options out there but these loans have higher costs and extra Insurances. With 20% down these insurances go away. That leaves 80% financed and 80% in your accounts!
2) Would you put all your money in Stocks.... How about Money Markets or CDs.... All your money in Gold? Most people would say "No" so why put that much into buying a home? Plus your home's value doesn’t change based on what you owe. Diversity is key!
3) Crazy Good Interest Rates are still available plus you get the lowest payments for the amount financed. Where else can you borrow Hundreds of Thousands for that payment amount?
4) Once that money is put down, how do you get it back out? Answer: Selling or Refinancing. OR you can take some of that money up front and diversity. Take some and pay off other debts. This could free up money to take a shorter term Mortgage like a 15 or 10 year which also lowers the rates. Take some of that money and buy other investment properties. Take some and put it into retirement or rainy day savings. I’ve seen people use this extra money to raise their deductibles on various insurances lowering their monthly costs.
5) Available tax benefits. Disclaimer and Compliance guy jumps in an says "I’m not a licensed accountant so consult your CPA for tax deductibility”.
I sat down with a client that was wanting to put almost all of their previous home's equity as a down payment. As we reviewed their options and their overall savings plan, it made more sense to put less down and hold onto the rest. We set up an automatic withdraw from a savings account to cover the mortgage and the wife's Social Security deposit also went into that account. We created this account separate from their day to day checking and savings. Even at a different bank. They had the house payment covered for just over 13 years with this system without counting any interest gained from the saving account!
If you know someone that pay cash or put a large down payment on their home talk with them about a refinance and take advantage of today's rates!