Cash VS Financing

Hey, before before we dive into number two, I want to I want to highlight what Sharna just just chatted in.

Yeah. Reach out to your clients. There are a lot of clients in 2020 that couldn’t purchase a home because they didn’t fit the jumbo guidelines. Jumbo loan guidelines have significantly changed due to covid-19. So this is a huge, huge opportunity. Now they can stretch their price point, get up a little higher and still avoid the jumbo loan requirements.

So this is this is a huge opportunity. So, Shana, thank you for that. I highly recommend reaching out to those buyers that were on the upper limit. This now would be the time. All right. Cash versus financing is a really hard, hard one to address because debt is both logical and illogical. What do I mean by that? A lot of people suffer emotional and physical anguish. Debt stresses them out. And so when you have the ability to purchase a home cash, you can eliminate a lot of that stress.

The same token, you eliminate all the interest. You don’t have to do the loan transactions much easier. So that’s kind of a Dave Ramsey approach, right? Let’s be debt free frees up our life. We don’t have to be stressed about debt. We have to pay all that interest. It’s a great deal with all that being said, if you fit into a Robert Kiyosaki, rich dad, poor dad bucket, it’s really hard not to lean towards financing right now. Most interest rates are below inflation. So the average interest rate, pretty much for most people who are financing is below three percent. What does that mean?

That means you’re able to borrow money at a rate that’s less than inflation. That’s pretty powerful. So that would mathematically your purchasing power would increase as you leverage. And borrow money. So, yes, it’s a little more complicated than that because you are amortizing a loan, you are paying interest, it is still tax deductible if you itemize.

But long story short, it’s a hard question to answer. So I have clients who kind of struggle with that from time to time. And what I tell them is this. If you make a decision to buy a house cash six, seven, eight months later, you’re like, you know what, I want access to that money. There are a couple of different ways you can do it. You can do a cash out. You can do a home equity line of credit.

And those are great options as well. So it’s not the end of the world if your client decides to buy cash and then wants to kind of go back. On the flip side of the coin, if they want to finance and put down five, 10, 15, 20 percent, 30 percent, and then six, seven months later, they decide kind of sick of this, I want to pay it off, go pay it off. There’s no prepayment penalty. You can also recast your loan.

So let’s say or you put down 20 percent and then you say, you know, I’m going to put down another 20 percent instead of refinancing. And going through all that, you can just recast. And then what’s going to happen is your amortization schedule is going to be amortized based on a lower loan amount, drop your mortgage. So it’s kind of the best of both worlds. So the end of the day, the cash buying cash versus financing is really going to depend on your client’s comfort level with debt and leverage. And that’s different for everyone.

So I highly recommend having your client either a talk with a financial adviser if they’re considering it, because there are a lot of opportunities in the market right now to earn a lot more than two point two point five percent. Right. So they can leverage their money, keep their money in their pocket and grow their investments and also talk with the loan officer to see what does that look like?

What are the numbers? Maybe there’s a perfect medium. I don’t know. But as Lindsey mentioned, those two books, Ramsey, Kiyosaki, they’re both very important. I highly recommend everyone read them or listen to them. My kids have both read Rich Dad, Poor Dad. It’s a really good concept to understand questions on cash versus financing.

I know it’s a big deal when you’re making an offer. Sometimes they may have to go cash. Sometimes they can do financing. So, again, this debate’s not settled. It really depends on your client’s comfort level to people. They need to talk to the lender and probably a financial adviser. And Lindsey is a great, great resource for that. So thank you. That’s a balance of the next one. So I do think Lindsay should host as well, Lindsay is a phenomenal host, she’s great, she’s very knowledgeable and she cares, which is hard to find in a financial adviser. All right. So we kind of talked about leveraging money.

Brandon Hern

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