Mortgage Money or Cash?

Mr. Buyer: “I want to purchase the home that is $20,000 cheaper than that other home! Sure, I’ll have to replace the carpets and the windows need updating, and of course, the kitchen needs a bit of work, but it’s certainly the better deal!”

Is it really? Let me clue you in on the difference between the cash money on the out of pocket expenses and mortgage money… There is a huge difference between mortgage money and cash money. Just let me explain and you can view this from a whole new perspective.

Yes, you may want to buy a house that’s $20,000 cheaper, sure, who doesn’t love getting a great deal on a home? What you aren’t really thinking about, however, is that it’s probably going to cost you $10,000 to $15,000 to fix that house to bring it up to the standard of a house that costs $20,000 more. It will cost you about the same amount to update and repair a home. So, what would you rather do? Would you rather finance an extra $20,000 over a thirty-year loan at a smaller interest rate (which would equate to a minimal amount of money, I mean, $20,000 divided over thirty years is insignificant. It comes out to about $10 to $20 a month!)? Whereas if you have $20,000 worth of repair work to be done, it’s cash out of your pocket or you are going to have to max out your Home Depot credit card. If you look at it this way, it makes sense. Cash money and mortgage money are completely different considered over the long term.

What is really important to consider when looking at a house that may be a little lesser in value: Do you want to pay a little more and finance it over thirty years at a very competitive interest rate or do you want to run up the Home Depot credit card at 20% or 21%? It’s definitely something worth looking at and thinking about! When we are in a house with the buyer, it really is in Mr. Buyer’s interest when we inquire of him, “What do you think those repairs may cost?”

“Well, the rug is $3,000, that is going to $5000, this over here might be about $10,000…”

Well, if you are going to spend that much money on just carpet replacement, and updating, why don’t we up your spending power and just start looking for houses that are $10,000 or $20,000 more and see if we can alleviate your out of pocket updating expenses? Ultimately, it is Mr. Buyer’s choice on paying out of pocket now or making the decision to eliminate that hassle and allow us to help spread out that extra cost over a lower interest mortgage rate over a length of time.