Posted on: 27 January 2017
If you have a lot of cash on hand and want to buy a house, you may wonder if it is a good idea to use the cash to buy the house. This can be a big decision, but there are several reasons it might be better not to use up all your cash to buy a house. Here are three things to consider if you are trying to make this decision right now.
You will sacrifice your liquidity
Liquidity is a word that refers to how quickly you can come up with cash. Cash is the most liquid asset you have, whereas a house is considered illiquid. It can take a long time to sell a house, in some cases, and this is what makes it illiquid.
While paying cash for a house is not a bad idea, it might not be a good idea if you have to use all the cash you have. If you no longer have any cash on hand, you may run into problems when you need it for unexpected expenses. Because of this, you should carefully consider your financial situation before paying cash to make sure you do not sacrifice all your liquidity.
You may lose tax benefits
There are several tax benefits you can take advantage of if you have a loan, and you will sacrifice these if you pay cash for your house and do not borrow any money against it. One of the main tax benefits of having a loan is the ability to write off your mortgage interest on your income taxes. If you itemize your deductions, you may pay fewer taxes if you write off your mortgage interest. In addition, when you itemize, you can also write off the property taxes you pay on your house. These deductions would not be possible if you did not have a loan.
You will not build your credit
Finally, if you are interested in building your credit and improving your credit score, paying cash for a house will not help you at all. When you take a mortgage loan, it will. Each time you make a payment on time, it will be reported to the credit bureaus. This will slowly help you build and increase your credit score.
Paying cash for a home for sale can be a good option in some cases, but it isn't always the best option. To learn more about buying a home and your options with this, contact a real estate agent today.Share