How to buy your first home: is the mortgage or the cash better?

How to buy your first home: is the mortgage or the cash better?

Nearly 90% of recent buyers have financed the purchase of a home – their first home – through different real estate agencies. Meanwhile, a recent study showed that 19% of homebuyers paid with cash .

If you’re one of the lucky few who gets to choose which category you fall into, read on. Below we outline the pros and cons of paying for your home in cash versus getting a mortgage . It certainly isn’t as simple as dropping a mortgage payment. And a number of factors should be taken into consideration, including

Current mortgage rates.

The amount needed for financing.

And your own unique financial situation.

Why you should consider paying cash to buy your first home

One of the main reasons to pay cash for a home is to own the home outright . There are fewer fears of foreclosure if you don’t owe a lender. Though you could still lose your home if you don’t pay your property taxes, for example. And you don’t even have to worry about defaulting on a home equity loan which could negatively impact your credit.

Owning the home outright also means that you have the right (but not the obligation) to borrow against 100% of the equity you have in your home if necessary.

Lower monthly payments

You won’t have to devote a significant portion of your income to paying your monthly mortgage, which means more free cash flow for other needs each month. Keep in mind that you will still be responsible for a variety of expenses after buying a home, including applicable homeowners association fees , homeowners insurance , property taxes , and maintenance costs , even without a mortgage. Eliminating mortgage payments typically reduces the top monthly expense for most households.

You can save thousands – or even hundreds of thousands of dollars – in interest expenses by simply not having a mortgage, which can be a huge amount over 15 or 30 years. What makes home loans expensive is the sheer size of mortgage loans.

As a point of reference, taking out a $160,000 mortgage loan at a rate of 4.375% can cost over $120,000 in interest expense if repaid over a 30-year period. Regardless, it’s important to note that mortgage debt is among the cheapest debt Italians can take on.