A sure way of attracting the attention of a seller, especially in a hot housing market, is to make an all-cash offer. After all, it eliminates any suspense about your ability to close the deal. It also tends to fast track the transaction, which many sellers find attractive. However, while it is clearly advantageous for sellers, it may not make the most sense for you once you take ownership.
How Mortgages Benefit Financial Goals
While owning a home free and clear of a mortgage may be appealing, many cash buyers end up mortgaging their properties after they close. The reason: It often helps achieve more of their financial goals.
4 Ways Mortgages Benefit Borrowers
1. May Help Optimize Tax Deductions: Given that interest paid on a mortgage is tax deductible in most cases, having mortgage interest can help maximize a homeowner’s deductions. This can be especially beneficial for those in higher tax brackets. Be sure to consult a tax professional for advisement.
2. Can Enhance Liquidity: Retirees often add a reverse mortgage to their homes to boost their income. Additionally, a reverse mortgage line of credit can be used to ensure borrowers have ready access to money for any high-expense repairs, medical costs, or other purposes.
3. Enables Wealth to Accumulate: A mortgage provides a homeowner with access to a large chunk of money that can be used to invest in other assets. From a side business to an investment portfolio, the money may boost returns , especially if it produces a source of income. It also enables the homeowner to diversify across a wider variety of markets and create a liquid reserve to ensure against possible repairs and expenses.
4. Capitalizes on Borrowing Capability: Borrowing when income and credit ratings are high is less costly than borrowing when money is actually needed. For instance, borrowers who decide to enter a second career later in life or who transition to self-employment may face higher borrowing costs when they apply for a loan. Those who already have a mortgage and have used it to build savings to meet future goals, could potentially save on their interest expense in the long run.
Competing Against an All-Cash Offer
As attractive as a cash offer is to a seller, you needn’t feel as though it is your only option as a buyer. Having a preapproval letter from your Loan Officer and verification from your financial institution that you have an account with a balance that covers the down payment can also set a seller’s mind at ease. This is particularly true if your offer is a little higher than the all-cash offer.
Being able to provide sufficient flexibility to accommodate the seller’s preferences regarding a closing date can also influence an acceptance in your favor. With emotions so closely tied to a long-time family home, writing a letter to persuade a seller that you would make a good caretaker has also been known to seal the deal.
Whether you decide to make an all-cash offer or are determined to compete against one, be strategic about it. As nice as owning a home free and clear sounds, make sure it serves your personal financial goals and circumstances first.