Debating
whether or not to buy that next home with cash or not? I know, what a problem
to have! But it’s a serious decision, especially for Baby Boomers who have
significant equity in their current home.
Many
of my clients (especially Baby Boomers who are downsizing or relocating) ask me
if they should pay cash for their next house or finance it with a new loan.
While the idea of owning a home free-and-clear is certainly appealing, I always
present them with a series of questions to help them clarify the big picture.
Perhaps you or someone you know may benefit from these as well:
How much will you be left with after an all-cash purchase? Maintaining a safety net of three to six months’
worth of living expenses can be a real comfort after you’ve done well on the
sale of your home. How comfortable will you be if an all-cash purchase brings
you near zero?
Are you retiring soon? This
goes to two issues: First, whether or not the absence of a mortgage will
significantly improve your monthly position, keeping in mind you’ll still need
to make insurance, tax payments, and maintenance. Second, if you’re thinking
about applying for a loan. It can be a challenge to qualify for a loan after
you’ve retired, so if you think you’ll need a loan, it may be better to get it
in advance.
What’s your tax and income situation look like? For some people, the mortgage interest deduction
on income taxes has a significant impact on their annual tax bill and overall
cash flow picture. It’s always a good idea to consult with a financial
professional before you “write off” the write off.
Might you need to help someone out in the near future? Sometimes having the liquidity to help family
members or close friends in need is important. Are you planning to help someone
else with a down payment on a home? Is it likely you’ll have to help a
close friend or relative through a tough time? Having cash on hand can be a
comfort.
How important is “free and clear” to your mind? For some, there’s nothing that compares to the
idea of owning a home free and clear. Sometimes the feeling of “no debt” simply
can’t be overpowered by tax or liquidity benefits. It’s important to be honest
with yourself, and if you’ve always dreamed of dodging a house payment, it
could be the right emotional move.
For all of these reasons
and more you’ll want to choose wisely before you go in for an all-cash purchase
of your next home. Naturally, if you need any help selling your current home or
looking for the next one, I’d be happy to help. Write to me at
valerie@valeriemcconville.com or visit my website at www.valeriemcconville.com
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