Should You Get A Mortgage or Pay Cash For A House?
Buying a home has always been the ultimate goal of the American Dream. There’s just something about owning your own home that screams “I made it!” to the rest of the world. This probably stems from the fact that houses today are so expensive and typically require a lot of time and dedication in order to be able to afford one. Owning a house usually requires some form of education, as well as a decently paying job. Even then, you may struggle to afford a new house without some assistance.
There are two primary methods of purchasing a house: getting a mortgage and saving up cash to pay for the house. Each comes with their own advantages and disadvantages, and each work better for certain scenarios. Which one should you choose, the mortgage or saving cash? What are the pros and cons of each option? Let’s take a look.
Get A Mortgage
For most people, getting a mortgage is the most realistic option for purchasing a home. The simple fact is that for most people, saving up cash to buy a house is simply unrealistic. Houses can be expensive, and the amount of time and money that is required to save up that kind of cash is insane. Getting a mortgage can alleviate a lot of the stress that comes with saving up for a house, as it allows you to pay in increments over the years. One of the major downsides of having a mortgage is the interest that comes with it. Interest payments can really jack up the price of purchasing a house, making you pay many extra thousands of dollars in interest on top of the initial payment. In addition, getting a mortgage doesn’t mean that you have to completely ignore paying cash.
It is entirely possible to save up a large amount of cash as a down payment and then covering the rest of the payment with a mortgage. If you’re someone who feels like you don’t earn enough to stash away large amounts of income at a time or doesn’t have time to save up a large amount of money, then getting a mortgage is probably the route you should take. Remember that you can always get something like a short 10 year fixed mortgage if you have a large down payment.
Pay Cash
If getting a mortgage isn’t the option you want to go with, then you can always save up cash and use it to pay for the house. This can be a difficult strategy, as saving up such a large amount of cash is quite the task. Nonetheless, it still has its advantages if you can manage to pull it off. For example, using cash means that you’ll have no interest payments at all, something that can potentially save you thousands of dollars. You also won’t need to worry about things like using a house payment calculator and other aspects of planning a mortgage out. Many would say that paying cash for a house is the ideal method, but the problem is it simply isn’t attainable for some people. Saving that much cash either requires a large income or a very extended period of time. If you’re someone who has a lot of disposable income or are looking to purchase a home a decade or more down the line, then paying cash and avoiding a mortgage may be the best option for you.
The Verdict
If you’re someone who has the financial ability to easily save lots of money, then saving up to pay cash is probably the best option for you. In all other scenarios, you should probably look at a mortgage. However, combining the two options may also be a good option. One common method of doing this is the 20% rule. This rule states that you should save enough to cover 20% of the house cost with cash, and the rest of the payment will be covered by your mortgage. This allows you to have the best of both worlds, meaning that you have a lower interest rate and you don’t have to save up an unreasonable amount of cash. This option is a happy medium between the two, and should be strongly considered if you’re struggling to choose.
