Question About Buying A House

[BuffaloBill]

Hey Guys,

I am trying to buy a house or a condo and I have enough money to buy it in cash, without taking out a mortgage but I am not sure if it is the right thing to do.

What would you do?

Buy the condo in cash, or take out a mortgage?

There are arguments for both, and I can't decide what to do.

Any help would be great.

Thanks a lot.

 

[ageecee]

Pay cash...

 

[Morris]

:iagree:

 

[freelancc]

keep your cash in the bank in your name, particularly in these times.

if anything goes wrong with your new home, or new neighbors, or job situation or the new economy or anything, the cash is still in your bank account and you can walk away cleanly.

just my 2 cents:0corn

 

[CANADA MAN]

Benefits of an all-cash home purchase include:

-Full and complete ownership of your home, with no mortgage payments! This can be especially important to some buyers whose parents or other family members lost their homes to foreclosure during the Great Depression, or those that have simply taken note of the sheer numbers of homes in foreclosure today.
-Buying with cash eliminates mortgage interest, which can more than double or even triple a property's purchase price if the loan runs its full term.
-The cash buyer doesn't spend money, time, or effort obtaining a loan. Closing costs are minimized, to include only minor expenses such as deed preparation, recording documents, and the like.
-Cash buyers don't necessarily need to obtain the property appraisal that's required with most mortgage loans (except possibly to verify that he or she is paying a fair market price).
-Cash gives the buyer greater purchasing power, because a cash purchase is free of financing contingencies and finance-related costs. In addition, having all cash makes negotiating a discount of the purchase price a strong probability.
-The cash buyer can take out a loan on the property later, using its value as collateral.

Some benefits of financing the purchase:

-By obtaining a mortgage, the borrower employs one of the most basic principles of real estate purchasing: using leverage by buying with other people's money, or OPM. This eliminates the need to use precious cash to buy the home; potentially depleting reserves which could be used for other purchases, emergencies, or lucrative investment opportunities.
-No mortgage interest means loss of the interest tax advantages. Also, if consumer loans are needed later to finance other purchases (due to cash shortages), that interest is not tax deductible.
-Other closing costs are may also be tax-deductible. For example, discount points ? even those paid by the seller -- are tax-deductible for the homebuyer. Additionally, with a mortgage loan, some fees can be financed to provide greater purchasing leverage.
-The cash buyer who doesn't obtain an appraisal could be paying too much. Should the property need to be sold in a short time, it might not bring the full price that was initially paid.
-By taking out a loan later, the homebuyer actually becomes both the borrower and the seller for the purpose of paying costs. These additional expenses can include title insurance, discount points, and other closing fees.
-Mortgages applied for after cash purchases might be considered refinances and therefore may not be as low in interest rates and fees. This could inhibit the borrower from getting all of the cash that's needed out of the property.

 

[bear]

Buffalo Bill,

FINANCE....a no brainer
1.Rates are low
2.Tax advantages (feds subsidize payments)
3.Opportunity to grow cash rather than lose it in a falling housing market.
4.Having a huge nestegg always makes life easier
5.You will have a magnificent leveraged investment when market turns.
NOW................pay attention to this!!!
AS time goes by...Your mortgage will stay FIXED but your dollar will LOSE VALUE (especially the way we are printing them now for bailouts and trillion dollar defecits) SOOOOO todays mtg. should look like peanuts in 5 to 10 years.JMHO

bear

 

[AR182]

Buffalo Bill,

FINANCE....a no brainer
1.Rates are low
2.Tax advantages (feds subsidize payments)
3.Opportunity to grow cash rather than lose it in a falling housing market.
4.Having a huge nestegg always makes life easier
5.You will have a magnificent leveraged investment when market turns.
NOW................pay attention to this!!!
AS time goes by...Your mortgage will stay FIXED but your dollar will LOSE VALUE (especially the way we are printing them now for bailouts and trillion dollar defecits) SOOOOO todays mtg. should look like peanuts in 5 to 10 years.JMHO

bear

generally agree with bear....but i would pay 1/2 cash..& carry a mortgage....

 

[WhatsHisNuts]

i would pay 1/2 cash..& carry a mortgage....

Normally, I would recommend putting as little down as possible and take advantage of the time value of money (your cash is worth more today than it will be in the future, but considering the state of the economy and the falling dollar value (thanks bail out plan!), I'd go with AR's recommendation.

 

[krc]

generally agree with bear....but i would pay 1/2 cash..& carry a mortgage....

I think this a good idea

keep some cash


krc

 

[SixFive]

I'd love to be making this decision now!

I think I would pay half and mortgage half as well.

 

[Glenn Quagmire]

I agree with the others; I think bear has it nailed. Never, ever pay for a home outright as long as rates are low. I would recommend a 20% down payment so you can avoid mortgage insurance, but anything over that isn't necessary IMO. Having a mortgage will give you tax breaks (as bear mentioned) and it's the absolute best way to increase your credit score (as long as you make all your payments, of course).

Also, and this is just me, but I would take some of that extra cash on hand and put it in the stock market. I haven't seen bargains like this in a very long time. A lot of people will make out like bandits when this downturn is over.

GL

 

[AR182]

Normally, I would recommend putting as little down as possible and take advantage of the time value of money (your cash is worth more today than it will be in the future, but considering the state of the economy and the falling dollar value (thanks bail out plan!), I'd go with AR's recommendation.

i agree 100% with what gary posted..

 

[DOGS THAT BARK]

Good question--don't know answer but believe we had fellow here couple years back that said it was foolish to have any equity in house and to borrow it all out and invest it--haven't heard from him in a while.

I wouldn't know how to begin to answer your question as depends on lots of other circumstances but do know one thing for certain--is no way in hell I'd consider taking out equity loan for half value my house and start mortgage payments all over again.

been points made what you could do investing 1/2

--but theres another side of coin--consider investing the mortgage payment and interest you don't have each month.



I'm am certainly not doubting advantages other have stated--but something to say for having security of home paid off and no debt that lets lets you wake up in morning read all the doom and gloom the media and politicians throw at you and say fck em.

 

[Morris]

Why would you want to give the bank your money in the form of interest?

 

[WhatsHisNuts]

Why would you want to give the bank your money in the form of interest?

Why would you want to give them your money (which is worth more today) before you have to? Think about the time value of money over the course of a 30 year mortgage. Impact wise, what do you think your payment in 2008 will be in compared to that in 2028? Easy answer is that your payment now is worth more because in 2028, your payment won't be worth as much (inflation).

In my MBA finance class, the best example I heard was of a guy who could barely afford his mortgage in 1950, but in 1970 the mortgage payment was practically a joke....even thought he amount never changed.

 

[hedgehog]

no doubt with the market these days, pay cash you will not regret it at all

 

[vinnie]

a $200,000 home at 6% interest would cost u $288,658

pay cash & bank ur own mortgage :shrug:

 

[rusty]

Trust me,from a financed morgage myself.
Buy Outright.Come-On.....Its a non brainer ...

 

[Glenn Quagmire]

I have to say I'm really surprised by the number of people saying they would buy a house outright. I think a lot of people mistakenly think that they need to have as much equity built up in their house as possible. I still think it makes more sense, in the long term, to take the extra money and invest it in stocks, or to use the equity from your home and buy investment properties. With stocks you can realize compounded interest, and when you own multiple properties you can see much greater home appreciation (obviously).

I pulled this scenario from another site because I think it gives a pretty good explanation of why to only put 20% down:

Scenario #1

You buy a $200,000 home with cash. Over the first year the value of the home increases by 5%. Your $200,000 investment is now worth $210,000 which shows an increase of 5% on your investment.

Scenario #2

You buy a $200,000 home with 20% down and mortgage the rest. Your 20% downpayment comes out to $40,000. Over the first year the value of the home increases by 5%. This is an increase of $10,000, the same as in the first scenario. The difference however, is that it only took $40,000 out of your pocket to make that $10,000 increase, vs. the $200,000 out of pocket in the first scenario. That represents a 25% increase on your investment ($10,000/$40,000) instead of just the 5% increase in scenario #1 ($10,000/$200,000). Of course, you will have to factor in the interest that you are paying on your mortgage which will decrease that percentage slightly, but you still come out with a much better return on your investment doing scenario #2. In the meantime, you can take the $160,000 that you didn't spend on buying the house outright and invest that in stocks, bonds, money markets, etc.

 

[DOGS THAT BARK]

Why would you want to give them your money (which is worth more today) before you have to? Think about the time value of money over the course of a 30 year mortgage. Impact wise, what do you think your payment in 2008 will be in compared to that in 2028? Easy answer is that your payment now is worth more because in 2028, your payment won't be worth as much (inflation).

In my MBA finance class, the best example I heard was of a guy who could barely afford his mortgage in 1950, but in 1970 the mortgage payment was practically a joke....even thought he amount never changed.

That certainly is food for thought Gary--but what amount will the guy actual pay for his house that back then probably had selling price of $20,000.

If you took out 30 year 7% mortgage today for $100,000 its going to cost you $239,400.

Of course there are tangents on what you make on investment of money- some could be great--or as the fellow I spoke of earlier they could be catastrophic.

Without going through complicated projections I like to break it down to its simplest form avoiding "possible" outcomes and going with guarantees.

Will anyone give me guarantee of higher interest rate on my money than what the bank will charge me for loan--Have yet to find that scenerio.