We stress ourselves all day at work trying to build a better life for ourselves and our families. One of the best rewards we can offer ourselves is the home of our dreams. While many people prefer move-in ready homes to save time and hassle, some people want to build their homes from the ground up to have control on every minute detail.
One of the key decisions for home construction is regarding payment method.
In this article, we will talk about paying for home construction through cash or financing. The final call is always yours, so read the full blog to compare and decide which payment method suits your criteria.
Cash or Financing?
There are two main methods of payment: 1) pay all cash, and 2) finance using banks or lenders. Both payment methods are preferably used by homeowners for their home construction while bearing in mind the accessibility and magnitude of funds available to complete the entire scope.
Both cash and financing have their own faces of the coin, so let’s dig into each one.
Benefits of Paying with Cash
The prime benefit of paying with cash is that you maintain ownership of the house.
There is no fear of missing any lender payments, which doing so may results in a notice of default and if enough time passes without payment, can result in the lender assuming ownership of the house and your eviction. There is no concern about complicated legalities and timely procedures, and no lender terms and conditions for making changes to your property or conveying it to another.
Here are some additional benefits to paying cash for your home construction:
- No Additional Monthly Payments: You are free from the responsibility of dedicating a portion of your monthly income to paying off your increased mortgage. This results in more cash flow for other necessities or investments.
- Saving the Interest Liability: There is no leverage on cash payments, so there is no added interest expense. Decide for yourself whether you want to use your savings to fund the construction or improvements or whether you want to pay additional interest expenses to financial lenders.
- Beat the Competition: As rare as it is today to have a house constructed from the ground up, it is just as difficult to find a good builder for the job. People are hoarding the best contractors and winning them over with immediate payments, whereas financing the construction may result in a delay of funding due to lender inspections and cash movement, which may result in your contractors not being paid on time and not wanting to work with you.
Cash is a fast and easy method of payment. It is direct, efficient and attractive to contractors.
On the contrary to the benefits above, one of the main drawbacks of cash is that it is not easy to pay large quantities for all those involved as well as for large material orders. Also, cash payments do not have a legitimate record unless your builder provides you with a proper receipt, so it is not a safe option to consider for all transactions.
Benefits of Paying with Finance
Finance can be a time-consuming and lengthy process.
It involves a lot of documentation and procedure, and requires proper proof of identity, credit reports, income statements and debts in order to assess payback ability.
Yet the bright side of financing is that the financed house acts as leverage that helps in ancillary credit and tax benefits.
Here are some benefits of financing your house:
- Earn More Elsewhere: Study the market. If the mortgage rate is lower than the rate of return on the stock market, then it is a better option to invest rather than locking up your money in a large purchase.
- Leverage Your Debt: A financed property is always a potential asset, and equity can be drawn from the lender to help finance construction or improvements.
- Improve Your Credit Score: Having a mortgage on the property and making timely payments improves your credit score and your reputation in the market as well.
The Bottom Line
Financing is a more trusted process as it makes up for proof of transaction. It is also helpful in relieving the burden of immediate and full payments. And of course, when there is a chance of borrowing money at a lower interest rate, it is good to opt for a loan.
It is all about understanding the game of interest rates and investing at the right time. After all, whether you opt for cash payments or financing, remember that it is all about your choices and financial status.
Gather as much information as you can about cash payments and financing before investing.
At Property Twins, we are New Home Construction and Advice professionals who begin the process with a simple hello.
If you are looking for an experienced contractor to help you, directly contact Property Twins at hello@propertytwins.com and benefit from teaming with one of the best home construction, remodeling, and real estate services in the area!
