Here at Military Crashpad® we want to be your one stop shop for all your housing needs. Whether that is a short term housing option or information about buying your forever home. So for the next couple of weeks we are going to write exclusively on home-ownership. So stay tuned and if you have something you’d like us to write about feel free to drop a comment below.
Home ownership is a wonderful thing, but we want to release you from the need to buy a home. If you never choose to buy a home, there is nothing wrong with that. We definitely don’t see it as a sign of someone’s financial maturity, stability or sound decision making. Additionally there are thousands of people each year who do something very counter cultural, they pay cash for their home. Although as military members you have access to the VA loan, the best mortgage product in the business, you too can pay cash for your house. The question is should you?
Why You Should Pay Cash For Your House:
If you manage to save the whole purchase price of your home here are some very compelling reasons to do so.
Bye bye interest!
Consider this for a moment, if you purchase a home that is worth $300,000 with a 30 year mortgage at 3.5% interest (the current low interest for VA loans) with a 20% down payment (meaning you have to pay off $240,000) and you pay it off right on time you will have paid $394,621 for that house. Some simple math will tell you that you have paid $147,975 in interest just for the right to own that dream home. What other “investment” costs us so much? Paying cash will save you all of that interest.
Hello negotiation power!
Many people don’t consider this but someone who is paying cash is very often going to be able to pay less than asking price for a house. For a seller a cash offer is significantly better than a loan backed offer. There are fewer fees and limitations associated with a cash only offer. If you want to be in a great position to negotiate, drop a briefcase full of cash on the table.
Peace of mind in a tumultuous housing market.
This pro may seem intangible, but who doesn’t value security? Remember when housing prices plummeted in 2008, if you owned your home outright and didn’t need to sell that dip wasn’t nearly as significant. You couldn’t end up underwater because you owned the home outright. Yes your home can depreciate in value but you won’t be paying interest on something that is worth less than what you paid for it.
This may seem like a ridiculous advantage, but be honest wouldn’t you like to tell people you paid cash for your house? It would be like having the ultimate story topper opportunity. We are all motivated to a certain extent by ego and if that ego helps you make a sound financial decision embrace it.
Why You Shouldn’t Pay Cash For Your House:
Mortgage interest is deductible.
You can deduct your mortgage interest on your tax return, and while it isn’t as great a deduction as most people think it can make a big difference. Keeping more money in your pocket is always your goal when it comes to paying taxes and a mortgage deduction is a plus.
You’ll have extra cash on hand to save and for emergencies.
If you have the real chance to pay cash for your house, that means you do a fantastic job of saving money. If you save that well it means you should also be saving and have a fully stocked emergency fund. You will be fully prepared for any investment opportunity or emergency because you have cash on hand that isn’t tied up in your home.
Patience will HAVE to be one of your virtues.
Dropping cash for a house is going to take you time to do, meaning you will have to be patient. If you want to be in a house now, or if you have just toured a home you love, waiting to buy might not be high on your list of desires. You will probably have to wait at least 5 times as long (considering 20% as your original goal) to pay in cash and for many taking out a loan is worth the chance to buy sooner than later.
The math is on your side.
This con needs a little bit of explaining, if you were to take the money that you saved to pay cash for a house and had invested it all along the way you will certainly be richer in the long run. Save a hefty down payment, but take the remaining money and invest it and you will have much more in the long run. Since the stock market usually outperforms the 4% average mortgage interest rate it is in your best interest to take your extra money and invest rather than pay off your mortgage.
What do you think? Can you think of any pros or cons I’ve forgotten? Anyone out there actually paid cash for a house? Are there any home ownership topics you’d like us to cover?