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Tue

14

Apr

2009

Buying a house? Paying cash or financing?

Posted by babyfat Money
I still remembered my college professor who is from Bangladesh said he will not buy a house until he has enough cash. I am sure a lot of people from Asia countries have the same mantality, I applaud that, but like any financial decision, there are pros and cons of paying cash for a house.
Pros:
1. You do not need a credit history.
2. You can probably negotiate a better deal.
3. You actually own the house. It's a big benefit psychologically.
4. You are not leveraged - Buying a house with cash means that if the value of the home goes down by 10% then the money you put in also goes down by 10%. The most you can lose is the amount of money you put in. In the case of a 20% down mortgage, if the house's value goes down 10% then you lose 50% of the money you put in because of leverage.
Cons:
1. Less liquidity. Buying a house with cash makes it harder to free up that money in case you need to use it. If you buy a house with cash, any new mortgages would be considered refinances and carry a higher rate than a first mortgage.
2. You are not leveraged - Leverage goes both ways, so if the value of the home goes up, then the percentage gain of an all cash buyer would be comparably lower than the person who purchased with a mortgage.
3. No tax advantage - Mortgage interest is deductible on income taxes in the United States. If you are in a high tax bracket that benefit lessens the bite of the interest by quite a bit. In contrast, buying a home with cash does not give you any tax deductions.
Original article: http://www.wisebread.com/the-pros-and-cons-of-paying-cash-for-a-house
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Is it time to buy yet?

What's your recommendation? Is Miami a good place to buy now?

I think so

But as always, you need to do research and find a good deal. And once you find it, act immediately. My real estate agent told me for the past few months, the transaction volume has picked up a lot, good deal goes under contract in a blink. My closing agent told me the same thing this morning, since Nov. of last year, they have been very busy. People might argue volume doesn't mean recovery, I agree, but I think the market is definitely leveling off.