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WHAT ARE THE PROS AND CONS OF PAYING CASH FOR A HOUSE? DOES THIS CHANGE CLOSING COSTS AND HOW?

  • March 24 2011 - Nazareth
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Answers (6)

Hello Again Chickleteen

Paying cash will greatly reduce you closing costs, no mortage fees which average 3-3.5% of sale price and most mortage co. require you escrow taxes and pay anywhere from 3months to 1 year upfront to establish the escrow account. So with mortgage fees and escrows. Costs can come in around 6% of purchase price, This is where paying cash can save a large amount of money. Hope this helps...
  • March 25 2011
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If you are in a position to pay cash without strapping yourself it's a good thing.  Your recurring expenses would be taxes and insurance.

It's always wise to have some reserves for emergencies and unexpected repairs.

The current mortgage deduction sometimes opens up other deductions you cannot normally take.  Interest on the mortgage, property taxes, state income tax, personal property taxes to name a few.  These added together could exceed your standard deduction.  You can then deduct charitable donations and certain work related expenses depending on your profession if they qualify.

Consult a tax professional who can assess if this would be of benefit to you.

It's a secure feeling knowing your home is fully paid for no matter how the wind blows in the future.
  • March 24 2011
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The pros of paying with cash are obvious, you take all of the lender associated closing costs out of the equation, you can closemquickly, and depending on the seller, some respond better to cash deals. As far as the mortgage interest deduction.... Owning my home is worth more than any deduction you may be eligible for. Plus, if you own it, no one can foreclose on it (as long as you pay your taxes).
  • March 24 2011
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The costs of getting a mortgage would be removed paying with cash.

You still want to buy title insurance. It protects you just in case.

The bad part of paying cash comes down to interest rates. If you believe you can pay 5% now and get 25% later in the bank getting a mortgage could make sense. If instead you believe that interest rates would stay low not paying interest on a mortgage makes sense.

The other thing is once your money is tied up you can not use for for something other than a house.

As far as the interest deduction goes, I would rather keep 100% of my money instead of maybe 1/3 if in the highest tax bracket.

Most people do better with the standard deduction that by itemizing. Besides, there is talk of removing that mortgage interest deduction. If that happens any potential benefit is gone.
  • March 24 2011
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  • March 24 2011
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Pro's for paying cash:
For one, no mortgage payment and no money wasted on interest. And, you'll have lower closing costs (no loan origination fees, or appraisal). The whole transaction can be done very quickly (loans can take 3-4 weeks to get approved).

Con's for paying cash: Since you have no loan, you won't be able to write off the interest on your taxes (this is a huge benefit for homeowners with loans).

A lot depends on your tax situation and how close you are to retirement. I would talk to a CPA or tax attorney. Good luck!
  • March 24 2011
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