The Pros and Cons of Paying Cash for a House

By Xin Lu on 17 July 2008 (Updated 9 June 2011) 80 comments

My husband said that when we do buy a house, he wants to just buy it with cash so we can own it outright and in our way say "screw you" to the banks. I like that idea, but just like any financial decision, there are pros and cons to doing this.

Pros

No Credit History Needed

A long time ago I read a story of a guy who avoided credit cards and loans like the plague so he did not have a credit history, but he had considerable savings. When he wanted to buy a house no one would give him a loan, so he bought a house outright with his savings. In situations where you do not have the ability to get a reasonable loan, then paying cash might be the best option. (See also: Building a Credit History)

Risk Free Savings

If a mortgage costs 7% and you pay cash, you would essentially be saving 7% in interest risk free. So in the case where mortgage interest rates are higher than what you can get on your investments, you would come out ahead by paying in cash.

You Actually Own Your House

I think psychologically there is a big benefit in knowing that you own your house free and clear. You also free up quite a bit of income because you will have no rent or mortgage.

You Are Not Leveraged

Buying a house with cash means that if the value of the home goes down by 10% then the money you put in also goes down by 10%. The most you can lose is the amount of money you put in. In the case of a 20% down mortgage, if the house's value goes down 10% then you lose 50% of the money you put in because of leverage.

Negotiate a Better Deal

When you have the cash to pay for the full amount of a house, it means that there will be no contingencies on getting a loan and the amount of time needed to close a deal is shorter. This generally gives you the buyer more negotiating power for a discount on the price of the home.

Cons

Less liquidity

Having a mortgage lets you free up your cash for other investments. It is also not wise to put all your liquid assets into buying a house with cash because it is harder to free up that money in case you need to use it. If you buy a house with cash, any new mortgages would be considered refinances and carry a higher rate than a first mortgage.

You Are Not Leveraged

Leverage goes both ways, so if the value of the home goes up, then the percentage gain of an all cash buyer would be comparably lower than the person who purchased with a mortgage.

No Tax Advantage

Mortgage interest is deductible on income taxes in the United States. If you are in a high tax bracket that benefit lessens the bite of the interest by quite a bit. In contrast, buying a home with cash does not give you any tax deductions.

Conclusion

Generally, I think it makes sense to pay for a house with cash if the following conditions apply to you:

  1. The amount of cash you spend does not consist of a significant portion of your liquid assets.
  2. The interest rate on a mortgage is higher than what you can earn on your other investments.
  3. The amount of savings you get from an all cash deal versus a loan deal is significant.
  4. You do not want to deal with a credit agency in any manner.

Currently, I think mortgage rates are still low enough for mortgages to be worthwhile, but as banks raise their lending rates and housing prices fall further it may make more sense to buy a home with cash in the near future.

Have you ever purchased real estate without financing? Tell us about it!

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Guest's picture

Buying a house makes sense, let's see hmm umm, When you're RICH!

If you don't have (at least) 3 months of cash reserve after paying for a house cash, It makes no sense

There're alot of senior citizens that have a paid for house and no savings.

I never look at a house free and clear, because there is always property taxes and insurance to pay for. And sometimes that can increase.

Guest's picture
Yaotzin

i suppose you may be right in one way.. but then again, it all comes down to planning correctly.

im young (20yrs old) and i can say that buying a house in cash seems like a worth while goal for me. im still in college and im not even sure what my major will be! but i do know that WHATEVER career i choose i am going straight to the trailer park after i graduate.

if i live in a trailer park for about 10-15 yrs.(depending on the job) and save save save save and save some more. i should have an ample amount of money and job experience to move to canada (B.C.) or Spain and purchase a home cash.

i dont care if its a beautiful home or just a nice place to relax from work, i'll find something (possibly foreclosed) and give it all the T.L.C. it requires.

i dont want the stress of having a morgage ... i dont think i can even spell it right. anyway.... i just want a couple of bills to pay and a lil pot to enjoy and just live my life the way i want.

it's possible. and you DONT have to be rich.

there are tons of foreclosed properties for sale. and flipping houses is always a good business to accumulate a profit. foreclosed homes is where it is all at people!!!

look into it and you might even find your dream home

hope i helped out.

c ya.

Guest's picture
Jane

I've bought two houses by saving up until I could pay cash for them. I'm hardly rich; good looking in a mature sort of way, maybe, but not rich. My parents live in one house and my spouse and I live in the other. Obviously I had to have the patience to wait until I could pay "100% down," but this was really the way to go for me.

Your example of a 7% mortgage being the same as a guaranteed 7% interest return risk free actually understates the advantage of paying cash. The 7% return is untaxed; for me, avoiding a 7% mortgage is more like a guaranteed, risk-free 11% interest before federal, state and local income taxes. That's a stock market return risk free!

Also by paying cash, I avoided many fees and charges, such as escrow accounts that pay 1%, mortgage application fees, mortgage origination fees, mortgage "points," appraisal fees, credit report fees, lender's title insurance fees, and such dubious charges as the underwriting fees, document preparation fees, loan-review fees, warehousing fees, etc.

The "tax advantage" of a mortgage is highly overstated. I don't itemize and any deduaction for mortgage interest has to exceed the standard deduction to be worth anything to me.

Many people I know have also told me of the "mistakes" in how their mortgage costs are calculated, errors which seem to always favor the lenders. :(

If you want to refinance to get a lower mortgage rate, there are more fees for that, too.

Those up-front fees total thousands of dollars saved by paying cash. On the last house I bought, I saved well over $3000 by not paying mortgage fees to get a $200,000 house.

In addition to the interest part of your mortgage, there's the principle you pay, only a little at first but more as the years pass. That's extra money I have available to spend or invest each month.

Leverage is a two-edged sword. It's a gamble, a risk that might or might not pay off. I'll stick with the guaranteed risk free high return, thousands saved in fees and extra monthly free cash flow. And I love the "no paperwork" and not dealing with banks, mortgage companies, credit agencies, etc.

Debt, it's the spirit killer!

Guest's picture
Guest

We did it, too. Three years ago we paid cash for our house. I agree with you about saving on the fees and charges - money that you spend and get nothing in return. Plus some lenders make you get the house appraised - another couple of hundred dollars. As for the people who want a mortgage so that they can deduct the interest - why not just donate money to charity instead of paying it to the bank for interest - you get the same tax deduction and more satisfaction.

Guest's picture
Sara

Hello, I would like to know what risk could I have if I buy a house in cash??

the house cost is $148,000 dollars, the neighbors houses prices are $200,000 or more. This house is the smallest house in the neighborhood. I like the house a lot. I just do not know what to do.

Anyway, thanks.
Sara

Guest's picture
Ricky

Jane,

I'm married and 25 years old and want to pay cash for a house. Can you kind of give me some advice on how you saved up? How much were you putting aside each month? Did you make investments? What kind of savings account?

Thanks if you have time!

Guest's picture

Jane,

I found your experience to be way more informative than the article itself. I'm seriously considering paying in cash for a house in Puerto Rico that I'd use as a vacation home (asking price $52,000). Thanks for sharing your experience.

D. L. Blanco

Guest's picture
YoungProfessional

Dear Jane,

I decided to pay by cash in full to buy a loft condo in Chicago. I also am not using a real estate agent, because I had so many bad experiences with them in the past several years. Could you provide more details (step by step, if possible) on how you did it? I love the idea of "no paperwork" VERY VERY MUCH!!!!!! Any input from anyone will be very much appreciated!!!

Guest's picture
Guest 1

am planning on buying a house cash but for some reason many people who i talk to say it might not be the right way to go, but it seems like it has worked out just fine with you. I want to have that extra income every month instead of going somewhere else for the next 20 to 30 years on a mortgage.

Guest's picture
Paul

awesome post, you are very right. this country is crazy with debt, we are programmed to think it is acceptable.

Guest's picture
Salazar

when you pay cash, how long till the house is officially yours. Until the keys are in your hands?

Guest's picture
Guest Lurker

It's funny how Ms Jane pretty much overshadowed this whole article, and how the majority of the readers actually seek her input/advice. Good job Ms. Jane. Very informative insight on your part.

Guest's picture

Without getting into too much detail, I'll add that my wife and I actually chose not to purchase our house (in early 2007) with cash. In fact, we did the math and decided to do 100% financing in order to get the tax break on the interest instead.

 

The bottom line here is that you've got to understand the options available to you and make sure you include those as you create your own strategies to get ahead.

 

In our case, we were able to get the interest rate low enough that we felt we could comfortably make equal interest with our cash in other low-risk places. Additionally, it gave us additional peace of mind to know that we had the cash available in case any other emergencies came up.

 

Again, it's all about knowing your options and maximizing them to meet your personal goals and needs.

Guest's picture
Paul

100 financing? Seriously? That makes no sense at all. The mortgage tax break is not that beneficial, and congress can always discard it, in fact, its likely they will seriously curtail it in the next few years.

Xin Lu's picture
Xin Lu

Wow, good job Jane! You are right about the 7% savings not exactly equating to 7% return. If you figure in taxes, for some people a 7% mortgage rate is lower than 7% because they get a tax deduction. For others who do not get the tax deduction, then the 7% mortgage is equivalent to 10 to 11% in stock market returns because stock market returns are taxed. I think buying a home in cash is definitely right for some people who have the discipline to save up that amount of money. For others, they use their mortgage as "forced savings" , or free up cash to invest in more things. It depends on how much risk and debt you are willing to take I guess.

Guest's picture

If I could afford to pay cash for a house then a definately would. The stress you go through managing a mortgage can be incredible.
To remove that stress completely so you NEVER have to think about your mortgage repayments would be amazing! So I definately would do it.
I still live at home with my parents and will probably move out next year and rent for a little bit while I save up to buy a house.

Also on that note I think it is better to buy a house with a loan so you can pay off the loan rather than paying rent to someone else and helping pay off their mortgage. Rent money is dead money

Guest's picture
Robert

I appreciate hearing what others have done because I have been considering this. The house I am looking at would cost about 50% of my savings, which would not be everything I've saved, but still that's a very large amount to spend on one thing!! The interest rates are in my favor I think, as I could get a mortgage at 6%, and the savings are currently only earning 3-4% interest.

Guest's picture
Guest

I agree with paying cash if you can, however, regarding the mortgage fees

You should get an appraisal regardless
You still need to purchase owners title insurance, which is about 90% of the title insurance costs

If you are considering a mortgage from a reputable broker, the fees saved are much less than $3,000 cited above.

The actual costs saved are closer to only $500-$800, for credit report and underwriting charges.

The other mortgage charges, such as flood certification, appraisal you should get regardless for your own protection.

Additionally, other charges, such as closing fees from the title company and recording fees are charged regardless of how you pay for the home.

One other point. Refinancing a home, when less than 70% of the value, is the same interest rate as purchasing.

Guest's picture
Sam

Agree, I'd rather buy it cash (only if I have huge amount of it) for my peace of mind. You never know whats gonna happen next, it times like this, its important you don't end up in shaky situation.

Nice post!
Sam
Fix My Personal Finance
http://fixmypersonalfinance.com

Guest's picture
Guest

I was fortunate to be able to buy my home for cash 10 years ago. Now, at 48 and single again, lost my job last year, it Is quite comforting to know that I only have to pay for utilities, taxes (only in the low $3oo.oo range here in Southern Delaware)and my extras. It did take me several years, though, to build up great credit...having No credit when I bought my home was equal in merchants/banks eyes as having bad credit. After losing a great job a year ago, I can breath a sigh of relief knowing that I am in no danger of losing this house. If I had a mortgage of 1500.00 on top of living expenses, I would not be able to afford it here.
So, All in all..I would suggest to a friend to Buy your house outright if you are able. Nothing like the feeling of driving home and knowing that the bank is not waiting for their check each month.
One thing in closing, over the past 9 years, I was very disciplined when it came to putting money in savings. Each month, I put an amount I felt would equal rent in my area, into a savings account for a "Rainy Day". It came, so I am ok for now :-)

Xin Lu's picture
Xin Lu

I agree with getting an appraisal just to know if you are overpaying or not.  Though I think the tools of professional appraisers can be learned by yourself.  After you look at enough homes, you also sort of have an idea of how much a house should cost. 

I think Paul Singh is correct in saying that everyone should "understand the options available to you and make sure you include those as you create your own strategies to get ahead". 

As for me, I'm still a renter, but my parents and aunt have bought a house for my grandparents and paid for it in cash.  The house is in China where all the loans are adjustable and the rates are set by the government.  Loans as large as 1 million yuan is also hard to obtain.  My grandparents also didn't want to deal with a mortgage so cash was the best option. 

My parents still have a mortgage on their house because their interest rate is 5.25% fixed and with their tax deduction the interest works out to be around 3.5%.  For them, their investments pay more than 3.5% so they rather keep the mortgage and the liquidity. 

Guest's picture
Jane

Thanks to Guest for Comment #8. I really can't say if the lenders and agents I spoke with were reputable or not, but that raises the question of how an ordinary home buyer can easily tell whether or not they are working with reputable institutions and people. Most of us don't buy that many houses -- and if we do it's because we've moved to another area, hence new institutions and people -- that we never develop the experience to spot the disreputable.

Guest is absolutely right that many closing costs are the same with or without a mortgage.

Bankrate has an article that is relevant: http://www.bankrate.com/brm/news/mortgages/ccmain2006a1.asp

I'm in one of the areas identified in the piece as having higher closing costs. They only surveyed lender fees (owed only by those getting a mortgage) and title and settlement fees (owed whether you get a mortgage or not), but excluded taxes and prepaid items (again, owed whether you get a mortgage or not). Loan fees ranged from New Hampshire's low $1401 to Hawaii's high $1902 for a $200,000 house.

The figure I cited was about twice as high as those cited in the survey, but in my description I noted that the figure I cited in my case included a "point," 1% of the value of the loan. I was quoted a lower interest rate if I was willing to pay a point. My terminology could be wrong here and it could be that the point should not be counted as a lender fee (that's what my spouse tells me, anyway), but since I was going to be paying it to the lender, that's what it seemed like to me! Yes, it is possible to get a loan with no points, but the interest rate and monthly payments are higher.

Thanks, too, to Xin Lu for the reference to "forced savings" in Comment #6. Rather than the forced savings of a mortgage I did mine through automatic bank transfers to a "home ownership fund" account every paycheck. I had a goal and I tracked the fund as my savings accumulated. It was something I took a great deal of satisfaction in, rather than dreading the big bill every month, fearing I might fall behind and lose everything I'd worked and saved for.

Finally, thanks to Sam for Comment #9. The peace of mind that comes with no mortgage has nothing I can compare it with. I heard a program on the radio a few weeks ago that featured people screaming that they were debt free. The announcer quickly added, "...except for their mortgage." I wonder how much louder the shouts would have been from those who owed no mortgage, either!

Luck to all of you, mortgaged or not.

Debt, it's the mind killer!

Guest's picture
Patrick

Interesting post. Would you be interested in syndicating your content on the home page of my site? It's an online community of finance professionals ( http://www.wallstreetoasis.com ). I could add an RSS feed that will allow me to promote your blog posts to my home page (when i think it will lead to a good discussion and/or is appropriate), but I wanted to make sure you were comfortable syndicating first. The syndicated post would have a link back to your original post. Thanks, Patrick (you can reach me at wallstreetoasis@wallstreetoasis.com if you have any questions).

Also, if you are willing to provide a link to wallstreetoasis.com that would be much appreciated.

Guest's picture

Being mortgage free is great as it gives a greater sense of financial freedom, allowing you to be more selective about work assignments. Being able to do this from day 1 is something only a few people can achieve.

Whether it's a good idea depends on the house you can afford versus the house you want, how much spare cash this will leave you with and if there are any better homes for your money.

Guest's picture
T'Pol

I have purchased my two bedroom apartment in Istanbul Turkey with cash in 2004 when the market was down. At the time, it cost around 71,000 USD (92,500 TL) and now similar apartments are sold at 200,000 USD (240,000 TL). The investment proved to be a wise one but I value the peace of mind more. Interest rates are high in Turkey when compared to US and a long term mortgage would have made me a nervous wreck. A friend of mine told me to get a Euro mortgage and I refused to do it. At the time 1 Euro was 1.6 TL and nowadays it is around 1.93. I took the risk because my job at the time was pretty secure and I had some emergency money I could rely on for at least 6 months. Now, I am debt free and can save 40-45% of my income for the future. I hope to have the "Walk-away-money" in ten years so can start consulting and training on my own terms rather than stay as a part of the rat race.

Guest's picture
Benjamin

I would've definately paid cash for my house if I had the $$$.

Like the others have said, as long as you have additional funds set aside in an emergency fund and have made reasonable progress towards funding your retirement accounts considering your current age, by all means pay cash for a house.

People often over estimate the value of deducting mortgage interest. First, you must have over the standard deduction rate (non-itemized)to even begin deducting interest, and you typically end up paying $1.00 to the bank for every $.25 you save in income taxes!

I did the 30 year route myself but have recently begun accelerating my payments now that I have paid off all other non-consumer debt.

Guest's picture
steve

The "tax advantage" of a mortgage has been WAY oversold.

If you do the math, you always end up sending more money to the bank than you would have sent to the government.

For example, consider a mortgage where your annual interest payment to the bank is $10,000. In this scenario you could take a $10,000 tax deduction -- on the surface that sounds like a good deal. However, if you did not have a mortgage and you are in the 30% tax bracket (plug in your own percentage), the taxes you would pay on $10,000 are $3,000. So, with the mortgage "tax advantage" you are paying the bank $10,000 to save from paying the government $3000. In other words, with a mortgage you are trading $10000 for $3000 -- this is not a good deal.

In fact, if you want the same "tax advantage" as a mortgage, you can give money to your favorite charities (and not to a bank!!). The tax deduction for donating to a charity is exactly same as mortgage interest.

Guest's picture
FMF

VERY GOOD summary of the issues!

We've owned our home for over a decade now with no mortgage and for us, it's the only way to go.

Fred Lee's picture
Fred Lee

We own our house, but were renters for most of our lives, even after our children were born. I think there are times when renting is not a bad option, especially when you're young and single and have a world of opportunities ahead of you. Buying a house ties you down, so isn't it better to wait until you're really ready to settle down before you take the plunge?

True, money spent on rent is money gone, but the hidden costs of home ownership are huge, not to mention the time and responsibility. And it's not always so simple to just sell your house if you want to move, which is not uncommon when you're still trying to figure things out.

We love being home owners, and are grateful to have a yard and community (that we love) for your kids, but had we owned our home from the get go, we might not have had the flexibility to explore the world and figure out our lives before deciding where to settle down. 

Great and informative article, BTW.

 

Guest's picture
Guest

I've learned many facts from the posts on this forum and I appreciate all of them. I've often wondered if we'd be better off mortgage free. I've asked my CFA and CPA for their advice regarding making the payoff on my home mortgage (17 years remaining). Their advice differed, however the common point to which they both agreed was, the security that the home was yours free and clear regardless of the constant economic swings was invaluable. I've decided not to pay off the mortgage and continue to execute the plan that has me in this favorable financial situation. I will say that having financial security in tough economic times provides peace of mind that is unrivaled.

Guest's picture
kitty

I agree with most of what was said in the summary.

I didn't buy my home for cash, but I did pay off the mortgage balance in full from a "windfall" - the gains from the sale of my previous home that I was renting out from late 90s till early 2000s. At the time the option seemed attractive: my rate was 7%, the feeling of not owing anything to anyone - all the things people mentioned. It was also psychological - at the height of internet boom, a friend suggested that I sell about half of my stocks and pay off my mortgage. I was greedy. I told that I am getting a better rate on my stocks. Then the bubble burst. I hadn't owned any of the companies that went under, but I did own a lot of tech stocks and most of them lost a third or more of their value. Obviously when this happened I thought - it would've been better to pay off my mortgage then to lose the money. So when I got the money I paid off the mortgage.

In hindsight I am not sure if refinancing at 4.5% which was available at the time would've made more sense. Even though I save a higher percentage of my income now and still have more money "for fun", I am not sure if investing the money would've made more sense.

For people who say that deductibility isn't such an advantage: it depends on the individual situation. It is just something that you factor in when you compare mortgage interest to the rate you get on your investments. I live in NY State, and both income and property taxes here are so high that I can itemize even without the mortgage, so deductibility is a big deal to me.

Another thing to consider is expected inflation that can potentially reduce your mortgage payments to nothing. Imagine you borrowed at 9% around early 70s. Then you got double-digit inflation. Around 1983 when I just started working I got 13% rate on a regular bank CD. Wouldn't you want to be in a position of paying 9% while earning 13% (assuming you deduct mortgage and pay taxes on investments)? If you believe that inflation will go up, it makes sense to take a mortgage. I have a pretty affluent friends who just bought a vacation home. They could've paid cash for it but they choose to take a mortgage because they believe the inflation rate will go higher.

Another factor is age. If you are thinking of retiring soon it certainly makes more sense to be mortgage-free.

Guest's picture
Gates VP

Xin: You also free up quite a bit of income because you will have no rent or mortgage.

I like to think of it as freeing up cash flow. You're reducing your requirement for month-to-month living.

As to Ryan McLean (#6) (Rent money is dead money). NO, it's not dead, you have to spend money to have a place to live, even when you "own outright". The numbers are highly variable and do not support your thesis. Delving in to the blogosphere and asking the regular writers will confirm my point. Renting is a low-risk and efficient method of mitigating this cost of living.

Fred Lee (#18) nails it: ...money spent on rent is money gone, but the hidden costs of home ownership are huge,.... In fact, I'd go as far as to say there are no "hidden" costs to home ownership, just costs that people refuse to accept as part of the package.

Ever hear a home-owner complain about not having money because of "such-and-such" a home repair? (i.e.: the hot water tank needed replacement, the shingles needed fixing) The truth is, that hot water tank was going to need replacement, it was just a matter of when. Not having money in the bank when it goes just shows a lack of foresight and financial planning.

But honestly, it's the common disease. People are equally bad about tracking ther cost of their cars, the general populace has simply proven "very bad at math" when it comes to seeing the "big picture" on financial decisions. It's easy to think that renting = "paying someone else's mortgage", but this is just a small part of the picture and grossly inaccurate.

Back to the point. At best, home ownership is a highly personal decision filled with risks that must be considered. Paying for a house in cash is equally personal and a really good case can be made either way. Thank you Xin for providing a neutral view.

Guest's picture
Guest

The costs of home ownership vary with the age of the house and its location. The biggest expenses are things like the roof, sewers, termites, and so forth. Insurance and taxes are also pretty high. Renting is usually a worse deal, though.

I spend around $18,000 on rent, and the annual repair expenses are around $500 right now. Taxes etc, I'm guessing around $3k. If the landlord fixed everything that needed fixing, it would cost around $10,000, but that's a one time expense. Realistically, he could amortize it over 5 years or so - $2,000 per year. Also, the roof is a 15 year expense, and the sewage a 20 year expense if you don't maintain it. It's an old house. You can save that up by socking away around $2,000 a year.

So the annual expenses out of pocket are around $7,500. The other $10,500 is for the labor involved in managing the books, paying the mortgage, etc. (i.e. nothing) I looked up the sale price on propertyshark, and, basically, the landlord is breaking even on that part. In return, he's getting ownership of the house.

Net revenues are not high - sometimes I'm sure they're negative - but the fact is simple: the owner increases their equity, the renter does not. RENT is an acronym for Return Equity Not to Tenant. :)

At worst, the owner can bail out and recover cash from the house. Meanwhile, the renter can be rendered homeless.

Jason White's picture

My wife and I would love to buy a house with cash, but unfortunately we don't have a big pile of it sitting around at the moment! Still, it is a stretch goal for us. 

Any tax advantages missed could be made up by simply making a deductible gift to charity--the net effect is the same.

Guest's picture
Steve

Interesting post and comments and I would like to share my experience. When I bought my house I could not pay cash, but I did pay it off in 4.5 years. When I was looking at paying it off I wanted to know what my tax advantage of the mortgage interest deduction was. I did my taxes, federal only, without the mortgage interest, and then again with. The reduction in my tax bill was only 22.5% of the mortgage interest. So in my opinion the tax advantaged nature of a mortgage is somewhat overstated.

Guest's picture

We bought an invesment property last December in cash. This month we are closing two more deals - both also paid in cash. The amount involved were significant but we were able to lower the purchase price way below the market value of the property.

Guest's picture

At 36, I (+ non-working spouse+ 5 year old) have the house and 2 cars paid off with no debt and about $100k to spare and $4k per month in household expenses. Current gross income is $110k with savings of $40k per year in a job that sucks. What is the earliest that one can hope to retire without jepardizing the future. Definitely, I have a long working life ahead and am lookling for career change options as well.

Guest's picture
Guest

Any information you have on the subject would be much appreciated. I've recently been browsing the foreclosure listings on various websites and am looking to pay cash for a bank-owned/REO home in foreclosure. I wonder, does the process work the same as paying cash for a non-foreclosure property? (I'm aware of the risks involved such as the need for repairs and renovations). What I'm wondering is whether the process is otherwise hassle-free? I mean, as long as I have the cash, can I purchase the house from the bank? No special condition, no credit checks, etc?

Guest's picture
David

If my wife and I had the cash, we'd definitely pay up front for the house in cash.

If you calculated how much money you spent on a mortgage over 30 years, its more than twice what you paid for the home.

Not only that, but without a mortgage to pay, your living expenses drop considerably. You can then take the large chunk of money each month that would go to the bank and put it in an index fund, get a better rate than the overstated interest rate deduction and have a huge amount of money in 30 years.

That and the peace of mind of knowing you have a place to live that is yours is priceless.

Guest's picture
Guest

I was not in a position to pay cash 15 years ago. Now by selling some stock that is not paying anything near what the investment people(selling investments would have your believe).

If some one can show me a guaranteed 540.00 a month cash flow after I have bougt back a remaining debt of 93,655.00 for 70,377.00 and have a paid off asset worth over 150,000.00 I will snap it up.

The 540.00 cash flow coming in my planned retirement years, amounts to over 9% of my current income and will be close to 20 percent of estimated retirement income.

I will have about half of this money left as disposable after paying the taxes on my asset.

It will keep me from piece meal selling of stock as I need income in my remaining years. I know exactly what I will get in this down market where waiting is likely higher but not for sure.

If I continue on the mortgage the 93,655.00 is 13,655.00 more than the original loan even though I have paid it down over 15 years.

As I see it....

27,000.00 roughly in interest savings over 15 years.
540.00 per month cash flow
150,000.00 asset instead of about a 75,000.00 or so equity with a 540.00 payment from taxable funds.

No loss of any tax advantage since I do not Itemize.

The payoff money will come in a down market now, with the possibility of it going lower as well as going up in the next 15 years. The money will be from sell off of IRA and some other poor performing stocks. I will pay 15% tax on cash in IRA, I will pay that tax anyway if I wait and take it at the required withdrawel rate. I will have a small tax offset with sale of other net loss stocks.

Am I dreaming.

Zime

Guest's picture

Sara- I bought my house cash- it was one of the smaller ones- and all real estate people will tell you- location location location. If you like your neighborhood, gold star, if you have the smallest house- gold star- and if you can pay cash and have other savings for needed cash expenses... you will be free in your mind from dealing with mortgages. Good luck!

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Guest

Hello,

My question is now that the housing market is on a downturn is it wise to pay cash? I have saved about 350k and would like to buy a house outright without a loan. Are there and tax problems or problems with Uncle Sam? my money is in a CD and savings account and I would be paying with a bank check. I am looking at houses up to 275k I have no credit as I have never bought anything that I could not pay for at the time of purchase.

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Stephanie

How much discount from the asking price should I be able to negotiate by paying cash?

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YoungProfessional

I decided to pay by cash in full to buy a loft condo in Chicago. Could anyone provide any ideas on how much a discount in percentage I should negotiate with the home owner? I also am not using a real estate agent, because I had so many bad experiences with them in the past several years. Any input will be very much appreciated!!!

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homeadvisor

Why pay a mortgage if you have the money to buy the house with 100%. You always need a place to live and if you have a family, then you need it more. A mortgage have to be paid on time, otherwise you will be charged with fine or even foreclosure. In a free and clear home, no body have any say on your home. Pay property taxes on time, that's it. What if you die suddenly and leave a family behind. The banks will come to your family and take the house for non-payment of mortgage. A free and clear house is a great gift to your children. Some homes are used for generations under the same family names. What if you lose your job... who pays the mortgage then? If I had the money to buy a house with cash, I would do it. Paying mortgage, which I am doing now, is a great uncertainty for 30 years. A huge portion of human life goes on into paying mortgages. I wish I were free from this stress. Haven't you hear that a family living for 20 years in a mortgaged home was kicked out by the bank for non-payment of the mortgage on the 21st year? We all will grow old and after 20 years, no body will hire us as fast as 20 years ago. And that's when mortgage payment becomes difficult when you really need your home. I have seen people lose their home when they dearly needed it. If you have the money, don't get into the mortgage mess. Make it your own Home sweet Home..., not bank's.

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Shia

There is nothing more rewarding than owning a home MORTGAGE FREE. No stress of fees, crazy mortgage bills every month, or praying to god that you have enough money to pay that bill every month. Forget all the taxes and mombo jumbo that you would get back, and this other "money back" mess i've been reading from some of these posts. Everytime I read that i'm thinking to myself "these poor ppl are just money hungry and greedy". FYI if some of you didn't know, in the end you will actually be paying back way over the value of the house when/if you ever finish paying off your mortgage. When you pay cash, you actually have more of an advantage in trying to negotiate a lower price for the home! So if you have the money to pay for the house in full DO IT! It'll be worth it in the end.

Guest's picture
Eric

Nice thread Xin.

As someone said, taking a mortgage is also a bet on inflation (especially today) as if inflation kicks in (as expected) your principal will be reduced.

Now this bet makes sense if you think about the end of the 70s and beginning of the 80s where inflation helped our parents pay their mortgage but WAIT! [sorry for the caps ;)]

What people seem to forget is inflation doesn't kill your debt if what you make is not indexed on inflation!

The 70s were very different than today because today the concurrence of countries like China / India / Brazil etc (BRIC) will "moderate" any indexation of wages on inflation contrary to the 70s were this lower wages pressure was not felt.

The last 10 years we've seen the effect of that pressure: we've lost purchasing power because wages do not follow inflation anymore :(

So if inflation kicks in and of wages don't follow (as we can expect) the bet on inflation reducing the mortgage principal might be moot and you might even be caught between a rock and a hard place (your available income become less to pay the mortgage and you might end underwater...)

Guest's picture

At the time of writing this I am 23 years old. Personally I have moved away from the great credit score hype and went the ways of CASH. I see many of you noted a benefit of having a mortgage is more cash for emergencies, college, ect. Shouldn’t all of those be in different savings/investing accounts anyways. At this time I have a fully funded emergency fund and no debt. Paid off schools loans, I never got a hand out, just worked a lot. Now I am investing to be able to pay CASH for a home in the next 10-15 years.
This little tax break everyone keeps talking about, is it really worth it if you are paying almost double in interest rates by the time, I am betting most of your 30 year mortgages are paid anyways?
Cash is king; the borrower is slave to the lender.
Richard Kaulfers
Nuriche IND
RichardKaulfers.com

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Guest

I agree that cash is the best option. Afterall, look at how many homeowners got burned recently by banks that went flop. They put them in the outrageous mortgages which they both knew they could not afford, interest rates went through the roof an now we have tons of forclosures sitting on our local blocks. My local paper had over 100 Sheriff sales on forclosures this past month. That is like 25 times higher than normal literally.

I know unemployment has something to do with that also. But figure this, if we take out what we know we can afford even in a crisis, we would not be in these situations.

I prefer the pleasure of not owing anybody. I am 34 years old and have 2 children. About to have 3. I am a very private person and now a dog lover for the past 1 1/2 years. Nobody wants me to have my dog in their property so I have to hide her or take her to somebody else's house. Landlords can just be simply put, too damn demanding when you are paying them to live there. I did the calculations on Hud.gov. The savings on buying vs renting are very great. in like 10 years you could save over $30,000 depending on the price of the home, even more in other cases. I am just tired of slum lords and control freaks for the most part. I would rather deal with repairs and coming up with the money for it when it happens than someone continuously telling me what to do.

This is the main reason why I don't want to owe the bank. I don't need anyone coming to take my house back after I have invested so much. If I can't get the water heater fixed until next month, I just have to struggle a little bit. If I can't pay the mortgage until next month, I could end up in forclosure and even worse with bad credit. Not worth it to me. Things happen to all of us and I just want a house that is mine, mine, mine. For all of the reasons I just listed, I will be paying cash for a house by June 2010. I am looking to buy a hud home to get the extra savings. I am not a wealthy person and have not saved hundreds of thousands of dollars. But I have a nice amount to get me a cute starter house for my new baby and my two sons.

Having children is all the more reason to buy your own house. Landlords give you a harder time when renting when you have more than a kid or two. Its not fair but it is true.

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Guest

I have been living off of investments for about a year since I am lucky enough to have them and I am going to school. It's not a ton of money, but since I am pretty frugal in general, I live very comfortably. I am about to buy a condo and it occurred to me today that the money that I have sitting one of my mutual funds hasn't been doing very well over the last few years. If I look at the stats, it is making less than 5% and I only making about 2000 annually in dividends.

I think that not having to pay interest for 30 years would be worth it, and if for some reason, the value of the condo diminished over the next couple of years, it would be no more of a risk as paying rent.

Besides, I like the idea of having my cash flow fluid- I could save a lot more that way than having the money tied up with stocks- especially since it seems the real estate market, no matter how volatile- is still more concrete than the stock market. I would rather be dirt poor with a place to live than be worried about having to move out because the stock market tanked and I can no longer afford to pay my bills.

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tom

Well after reading this fourm ive decided to go cash.I`m 52 yo and have tearble credit due to a ex.I have enough to buy a small fixer upper because i can do 75% of the work myself on the house. ive been looking at homes now for a few months and can get a a home between $30,000 and $50,000 that 5 years ago cost 80 to 90 thousand if i pay cash. banks around Ga are trying to give them away.After asking a few realtors what the cost diffrence would be in the long run (30 Years)on a 50,000 house with 10,000 down the house would cost me $110,000. this is a no brainer for me.paying cash is the way to go if your credit sucks like mine for sure.Or if you have no credit or if you just do not like giving your hard earned money to someone else.The extra fee`s alone would have cost me $3,579.00.ill be retiring in 7 years a few years after that ill be able to draw my SS.so a paid for house will be well needed. it realy all depends on a persons cash on hand and and what you see in the future. And i dont see anything getting better everytime we turn around there adding more tax`s to something. so look at the long run.

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CashBuyer

Buying in cash is the best decision you could ever make if you have the money. No, you dont have to filthy rich. I am far from being rich and I have done it.

It is a question of mentality. In the US people cannot think of purchasing without a mortage, most of the people consider it crazy. Well in other countries, mortgages are almost non-existing and the only way is to save up and pay it in cash.

It is a great excersise of self control learning how to spend less to set money aside for such an important goal such as buying your home.

I have saved for many years and took the plunge. You dont need a lot more extra money to do so. If you have a steady income to pay for a mortgage I dont see why you wouldnt have it to live once you payed for a place.

With having cash enough to sustain yourself for a couple of months -consider you wont pay a lease or a mortage fee so you dont need THAT much- is more than enough.

In these days of crisis as results of mortgages you can get a pretty good deal when you have all the cash in hand.
Most people wouldnt refuse to make a discount when they see all the money upfront right away hassle free.
And lets not even get into how much you save because you dont pay interest. If you think of much you end up paying after a 30 year mortgage, you realize how expensive your house turned out to be after all!

If you run out of cash, no big deal. You know you have a roof over your head that is totally paid for so you wont be out on the street. You put yourself in a solid position to handle an economic bump, much better positioned than being tied up to pay to a third party when we know by now how easy it is for any economy to be upside down with short notice.

If things go bad, you go frugal until you get back on your feet.
If you have spare a room, you can rent a room to tourists for example. There are myriad ways to survive if you hit a rough patch.
If things go really bad, you can always sell, get cash again and reduce by buying a cheaper property -smaller, or in a diff location-.

You are indeed free to choose what to do without anyone interfering in your decision making process, no need of getting approval of entities who simply dont care about unless you are a good deal for them.

Going in for debt is a risky deal, is like betting on a casino. You can win, but you can lose pretty hard as well.

Buying in cash is HEALTHY!
Think about the stress you spare yourself from by not having to worry about rates, crisis, owing money to anyone, possible foreclosure and such.

I am not a socialist or anything, but the credit system is pretty evil. They want you to hop on the wheel and make you believe that the more credit you ask for, better for you and it is quiet the contrary.

There is NOTHING like knowing your house is yours and yours alone.

To those who want to do it, take the plunge! YOU WONT REGRET IT!

Cheers!

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Guest

It NEVER makes sense to pay someone else to use their money when you can use your own. If you calculate ALL the costs that go into purchasing a house, not only the loan, but the taxes, insurance, maintenance, etc. you'll find that it often costs 3x the amount it would if you simply rented.

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Guest

I disagree. I think your statement is very much dependent on where you live.
We bought our 3bedroom/2 bath/2car 1600 sf home 2 years ago and pay a grand total of $1,020K/month which includes taxes, interest, insurance.
If we were to rent a 3 bedroom 2 bath 1,500 sf apartment in this neighborhood we would be paying around 2,200/month. Before we (hubby, me, 2kids) purchased this home were were crammed, paying $1,200 for a 2 bedroom, 800 square foot apartment with a rat infestation and electrical problem in a crappy neighborhood. We needed 3 bedrooms but the apartments in decent locations were far too expensive. Even 2 bedroom apartments tended to run at least $1,500 in the nicer areas.
Despite being and old and decrepid apartment building, our rent continued to go up.
Now about that electrical problem. Because it was an old apartment complex with old AC units, our electricity cost was roughly 400 a month sometimes higher. We had no control since it wasn't "our place" we couldn't change the AC unit to a higher efficiency one. Since purchasing our home we pay approx $200.00/month in electricity. Curiously enough, our water bill is also lower, about $20.00 less a month in our home than when we rented.
In two years living in this home we have done "minimal" maintenance(all do it ourselves). Mostly cosmetic. For a very small cost a year, our appliances are all warrantied-including the heating/AC system. We also have warranties on plumbing issues.
whatever we do have to pay for down the road would have been offset by the savings of not renting.
In otherwords, we estimated that our savings are well over $1,000 a month by purchasing rather than renting a 3 bedroom apartment "comparable" to our house.
That is money in the bank we stash for a "rainy" day. We don't ever have to worry about "rising rent" either since our interest rate is fixed.
My parents rented for over 25 years before they were no longer able to keep up with skyrocketing rents and decided to buy. They were convinced that renting was the way to go, until they ended up spending more money and getting less and less with each year that passed.
Renting was a decision they have come to regret, especially since they passed on a home they could have afforded yrs ago. My father discovered about 2 years ago, that the home he passed up was worth over 800K in today's market. He could have bought it for 55K. and have long since paid that mortgage off.
Instead after 25 years of renting he found himself starting all over again with a mortgage. Still, it's a mortgage which is far less than what he used to pay in rent.
Renting only makes sense in your first few years of young SINGLE, NO KIDS, adulthood while you are still trying to decide what to do with your life and living in a tiny box is no big deal.

>>If you calculate ALL the costs that go into purchasing a house, not only the loan, but the taxes, insurance, maintenance, etc. you'll find that it often costs 3x the amount it would if you simply rented.

Guest's picture
kim

i'm 25 and have been renting for 7 years now and i think it's absolutely ridiculous to pay a mortgage if you have enough money to just pay cash for a home. forget about the "tax deduction" that you get now, and think about having stability. The job that is supporting you now, is that gauranteed to support you 10, 20 or 30 years for now? Probably not. If tax deductions is what you're looking for then donate your money to charity.

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Guest

I'm in the market for a house that would cost about half my savings. I'll probably make a "cash" offer but take a mortgage (cash offer meaning that there's no loan contingency and I'll bite the bullet and pay cash if I can't close a loan fast enough). The reasons I'll take the mortgage....

The tax benefit of the mortgage is equal to the tax "penalty" of an investment... At 5% interest, the mortgage costs 3.75% out of my pocket; an investment paying 5% earns 3.75% after taxes. It's a wash. But the mortgage interest is fixed - if investment returns are less than 5%, I can choose to pay off the mortgage, but if interest rates rise, I can keep the mortgage and earn a higher rate on savings.

If rates rise a lot, an assumable mortgage is an asset that can help sell the house.

A non-recourse mortgage is a form of risk-sharing with the bank. If the home value declines, I only lose my down payment and the value of any improvements - I can send the keys to the bank and walk away.

If I move or move up, I can rent the house. The mortgage interest is a business expense, and I still have my cash in hand for my next home purchase. If I owned the house outright, I couldn't buy another house until I sold the first one or got a mortgage on the second one. I KNOW I qualify for a mortgage now - in the future, who knows?

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Alphadeer

Wow, this is kinda funny. There is nothing that would sway me that paying a bank interest upon interest is a good idea. Also you can deduct your property taxes not just only your mortgage taxes. If things were to ever get in a bind and you have to take a loan out of the house you can do so since you have 100% equity in your fully payed home. No Mortgage means that every month those funds could be added to Money Market & an IRA Account and with the current rate of 1.35% in High Interest Saving Accounts that's always a plus. In conclusion there are no cons on buying a home if you have the cash to and putting that money you would a mortgage in your pocket and not the banks' pocket.

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Ryan

I really love all the positive comments here about buying a house in cash. One thing that this country has going for it is that enough people will always take out loans on everything to keep this country in the black for another year while the individual is in the red. Those wise enough to see past this ruse are the ones that are buying their houses in cash.

I loved Jane's story of owning two houses free and clear (a fantasy for most people) because she was disciplined enough to save. Sure, she made sacrifices to get their but look at the benefits. I've never understood why people argue in favor of a mortgage, as if tax benefits on over spending were somehow enough to offset the temporal loss of liquidity.

No one will ever be able to show me a math formula that will convince me it makes more sense to hold a mortgage for 30 years (a little under half America's life expectancy!!) and over pay for a house while at the same time living in an increasingly risk prone economy where jobs often disappear and never come back versus losing liquidity in a one shot transaction only to begin rebuilding that the following week because of some vague tax benefit.

Jane's story is really a strong motivator and inspiration for me. I hope we can all own our own home one day!

Guest's picture

"The amount of cash you spend does not consist of a significant portion of your liquid assets."

Thanks a lot for this fact.Agree, I'd rather buy it cash (only if I have huge amount of it) for my peace of mind. You never know whats gonna happen next, it times like this, its important you don't end up in shaky situation.

Guest's picture
Star

When you have a mortgage you do not "own" your home. If things turn for the worst the bank can take your house, no matter how long you paid your mortgage payment. So for example, say you have been consistent on your mortgage payments for the last twenty plus years and all the sudden you are laid off from work with no income for six months leading to inability to pay your mortgage, the bank will take your house away without guilt and will not refund you for all the interest/principle you put into it. Basically the bank has the upper hand, and is blind to human compassion. The bank operates with a psychopathic like personality with no consequence to humanity. Owning your home is taking the carrot off the "banker" string and actually eating it for once!!!

If you can afford to buy your own home in cash, then do it!!! Don't forget to live inside your means. One must factor in taxes, insurance, utilities, and home owner association fees etc. Owning your own home doesn't mean you don't have "home" expenses to consider.

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Guestkathleen modrete

i bought a house that the bank was asking 50,000 for and it was gonna go to an auction before it did i offered the bank 20.000 for it and got it i guess because the house did not sell no one was intereasted in it im happy i have some work to do to it the basement need to be repaired and carpeting in it and bathroom kitchen need to be just redone to modification but the house was woth that to me in this aconomy if more banks would give to a cash deal they would make more than a auction i say try it and the bank might go for it because to me in this day and time for 50.000 a house better be in one hell of a good condition and have some property and i must say the home was in a moderately sime rough area in cleveland make sure the bank knows this i think they will work with people or hell let them eat it hay its better to get something for a home that will sit and get tore up to hell!!!

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investor

I actually purchased two homes, cash, in the last year. I sold a lot of real estate in Arizona at "the top" in 2005 and 2006, and purchased a home and loft in Illinois in 2009 and 2010, both in cash. I actually paid for them with the gains from my "bubble" real estate. Afterward, I secured two HELOC loans against each respective property. I bought the first property distressed and had it re-appraised after 6 mos., so my current LOC = my original purchase price. So, between both homes I have about 91% available on my HELOC, which had no closing or appraisal costs and is currently under 4 percent. Thus, I have no mortgage, no debt, but nearly all of my equity available to me at less than 4% interest if I need it, which I don't.

With respect to the "write off," if you are high income you lose some of it and if you take a standard deduction you likewise don't get the benefit. Also, the average person in real life is a terrible investor. It is a complete fiction that the average Joe is going to out and successfully invest the savings from paying off a mortgage. What if you lose the money you could have used to pay off your mortgage? Most people lost money "investing" in junk bonds, the internet bubble and the real estate bubble (i.e. "flippers"). They will continue to lose money in the next bubble or shell game that comes along. Most people basically lose money at most investing endeavors. You do not lose paying off your mortgage. Even if your home does not appreciate greatly, or was not the perfect buy, you save hundreds of thousands of dollars in interest, live rent free and can sell down the line if inflation takes off in the future and your house appreciates greatly.

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Guest

I did pay cash for my home. The degree of mental comfort it gives me is far greater than any downside. I did keep a cash reserve of about 2/3 of our annual income. Also I do not have credit card, automobile or any other type of debt. I bought a small cottage. My real estate taxes and homeowners insurance runs me about $150 a month. Because the house is small my utilites are about $100 a month. I do have a cable, phone and internet bill that runs me $140. Car insurance $89. Imagine what life is like when all of your monthly expenses total less than $500 a month.

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Guest

Well, Location, Location, Location...that is the key for me. I worked hard and I am young (41) and I sold my BIG house, got rid of my BIG job, HIGH truck Payment and relocated to southern Missouri. I just paid 6800 dollars on a house that sold for 43,835 dollars a year ago in forclosure. It has been passed around by broker after broker. It has been vacant and winterized for over a year. I offered them 5500 dollars and settled on SIX THOUSAND EIGHT HUNDRED for a 2 bedroom with garage, big living room and a huge bathroom. Now the whole house is only one level and about 970 square feet....but is still good enough for any couple. It has a 50 x 100 foot city lot that is has a nice flow to it. It does need only one major thing....electric panel upgrade and some carpeting and paint....good to go!! What a diamond in the rough. So, if your contemplating purchasing a home....make sure it is one you can afford in this economy and one that you dont mind putting a little elbow grease into. Good luck which ever way you decide to buy. I would rather buy it for 6800 and know that is what I paid truly for it instead of mortgaging a 250,000 dollar home that will in the end cost you over or about 500,000 by the time it gets paid off. YIKES....been there...done that...No thanks.

Guest's picture
Eric

Buying a house with cash makes sense to me. Avoid the insurance man, and your only costs per year that you are required to pay are property taxes. You are not required to own insurance, and that allows you to buy insurance based on your risk and needs and allows homeowners insurance to become an option versus required because the bank told you so. You also may have less short term liquidity, but since you no longer have rent or mortgage obligations, you can quickly build up assets and create asset liquidity. There is also the option to sell the home, which itself is an asset and not so far fetched of an idea. You avoid the wasted monies that you pay with a mortgage, about $3500 or so in origin fees, and then in interest payments and lost interest due to escrow. $3500 is not so significant with an expensive home on the east or west coasts, but for the rest of the country and a 100,000 home, that amounts to 3.5% wasted for no equity. On the comment about tax benefits, well its not so significant. It is a deduction, not a credit-there is a huge difference. On my student loans, which works similarly as a deduction, I claimed 2,500 in interest payments. My tax liability for the year went from owing the government $59 to getting a check back for $300. Sure its nice to have some relief, but it doesnt pay for your interest-you are still losing money. It still becomes a no win situation with mortgage, and a cash purchase makes all the sense in the world.

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Guest

I'm doing my math to either get a mortgage ($350k) or go all cash. According to my calculations (looking at today's rate of return on CDs -10 years at 2.9% (no stocks for me these days)) it comes in to 11k difference in favor of paying cash. The way I did the math as follows: 350k with 4.2% mortgage $132k in interest minus 28% tax rate 36960 of tax savings-I end up paying $95000 over 10 years. If I open a CD for 10 years at 2.9% (for the same 350k) I will end up having 84600 in interest (after tax, same tax rate 28%), that means I'll pay 11k more in mortgage over the the same period of 10 years. I'm also worried about the inflation when money in the bank loose their value...
Anyone can confirm my math? Did I make a misstate somewhere?

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Guest

also forgot to take into the acconut inflation rate of 3%...so basically with todays rate of return (top 3% for 10 years) after the tax and inflation I'm loosing money in the bank...WOW

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Guest127

My husband and I are in our early and mid twenties, we have one child and have been married for almost 4 years. We decided when we got married and go the mobile home route instead of renting, we do still pay minimal lot rent and taxes and insurance, but that only amounts to $295/m. Our original "goal" WAS to live here long enough to build a great credit score by getting credit cards and paying them off, same with car loans. We have had 7 credit cards and 3 car loans, we now have a great credit score and are basically debt free save for one remaining car loan (We've been debt free on and off in our marriage). We didn't make a whole lot of money and we could only purchase a house for about $75k with 20% down from the sale of our mobile home that never sold, so we went off the market. A few months later my husband recently had a huge opportunity and took a new job that pays about 33% more a year, we have decided to bank this extra income and pay cash for a house in 4 years.
I'm sitting here reading some of the comments on this blog thinking house greedy some of you sound. To us, in this economy, it is wayyy worth the piece of mind to not owe anything on a house, just like we live loan free in our mobile home now. Paying cash for a home will take almost all of our cash when that time comes, but like we have in the past, its much easier to get by when you DON'T have credit cards/loans when your in a pinch then getting loans and purchasing everything on credit.
Plus, and maybe I'm wrong here, but if you were one of those who bought during the real estate bubble, and you have a 30 year loan, and nos you need to move, your house has depreciated so now you owe more than your home value. If you had bought your home with cash during that "bubble", yes you would lose money, BUT it would be much easier to sell your home because you don't owe anything to any bank. I know a few people who are in this situation right now. They are stuck because their house is worth say $75,000 when they still owe say $115,000. Had they paid cash, they could cut their loses, sell and walk away.
I watched my parents struggle for years with money, that will not be me and I will not follow the ways of the generations before me. If I don't get a tax deduction because I own my house, so what! It's MINE. Any of the reasons listed here to get a mortgage or no where near the piece of mind knowing you own something, just like we own our modest mobile home.

Guest's picture
Tommy

I'm in my mid-20's and screwed up my credit when I was in college so I decided buying a home in cash was definitely my best route. Fortunately, I run a successful business and currently rent my parents condo for a low cost. I need $150k to purchase a suitable 2BR apartment here (just outside NYC, expensive) so I crunched numbers; literally calculating every expense from bills to vacations/weekend fun. I then added 15% of my yearly expenses as room for error. I still have a large portion left over (30% of my annual pay) and simply throw it in the savings account and pretend it's not there. I've been doing this for a year and have another 3-4 years to go. I'm highly contemplating moving down south since you get a much better bang for your buck, plus people are a lot nicer. I guess it'll be a gametime decision down the road. If you have a plan, budget, and discipline there's no reason why you can't do it.

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Guest

Despite the fact that this is an older article, there are plenty of reasons to purchase a home with cash. My husband had a complication with a surgery. We are planning on purchasing a home with cash to help lift off the stress of my trying to work to pay rent and all the lovely bills that come with it. It will also relieve the stress of NOT having to deal with a landlord who will not make the necessary repairs! We cannot get a loan to save our lives and so we are going to purchase a home with cash. I just wish I could find more on the procedures on actually purchasing it with cash, not just pros and cons. It was still very informative! Thank you!

Guest's picture
Drew Custer

I can't imagine paying cash for a decent house at the moment, but I might try to someday. While I agree with your pros and cons, there can't be a better feeling than having your entire house paid off right away.

You can't put a price on that feeling.

Anyways, it's a 30-year mortgage for me until I can save!

Guest's picture
David

My first home purchase was in 2009. I built for $70 per square foot in Florida. I wanted new so I had warranty and all that.

After many discussions with my finanicial planner and accountant, we agreed that paying cash was the way to go.

I never had a mortgage. I dont think I ever will.

I am in "fail safe" mode right now. I know this bad economy turns down, and I lose my business (sad to say is close to happening) I know I can work part time at a fast food joint and live fine.

I'm 42 years old. Like many, I have lost "everything" and had to restart more than once. Its a great feeling knowing your house is paid for.

I realize I could have invested the 280K into something else and made 5 - 7 percent - but I could have lost too.

When I looked at the itemization of a mortgage I would have paid around 600K or so for my house that I paid 280 for... Not interested.

If you have the ability to pay cash, I say do it! in fact I bought a small property for cash in 2010 too...

Good Luck!

Guest's picture
DudeSteven

I hate banks. When I was young, 19 years old, right off Army, my close friends went around buying thir cars, their houses and getting the good chicks.

Someway how, may be from my father, I went the other way: I saved money. It was has hard on me to see those kids always looking good, with new cars and nice places on the beach... I even tried to get a loan, but the way I was dressing did not impress the bank manager which laughed at me...

I am 49 now, I have my house paid off in Brasil, Italy and I just might buy in the US, in cash, may be in south beach, miami.

Tnk God. Those loosers look at me now like I falled from the sky with som sort of
inteligence on doing what I did, while it only took me will after will.

But the question is, what are the taxes for buying with cash in the US ?

Guest's picture
zen

Trying to decide whether paying cash or getting a mortgage is best. If I buy a condo, it would take roughly 75% of all of my cash to do it. So, I'd be left with 25% of my cash and the condo. The condo would be in a relatively good real estate market - Manhattan, NY - so odds are good the property value will remain stable and then slowly rise in the future. Add to that one rental property (no mortgage) and a possible 2nd rental property if I can swing it (no mortgage).

Because of the threat of inflation, I would be inclined to get a 30yr., 4%-ish, fixed-rate mortgage and allow the debt to be diminished by inflation and enjoy the tax benefits of mortgage interest and property tax deductions.

The problem is I'm in transition. Going back to school full-time in the day. Planning to work a 4pm - 12pm schedule while in school. Currently unemployed. Even when I'm working, mortgage lenders seem to require a minimum of 2 years employment in the same position which means I'd have to wait at least 2 years for a loan (or am I wrong about that?). Not to mention the salary will be pretty low while I'm in school, probably around $25,000/yr. On the plus side, credit is in the 790s as of last check. So, if I do get a mortgage after a couple years of working/school, then 1) the rate will undoubtedly be higher and 2) the loan will be relatively small based on my income and will not cover anywhere near half of the cost of the condo.

So, the questions are:

1) is it at all possible to get a mortgage as a student? Even if I got a small mortgage now, that would still help a little with inflation.

2) If I can't get a mortgage at all, would it be worth it to purchase the condo in cash? I'm hesitant to lock so much cash up in one investment, but I would still have 25% of my cash left, plus salary, plus rental income.

Not to mention by paying cash, I'd avoid many fees and charges that add up big-time and of course all of the mortgage interest. Also, I'd get 75% of my cash into a tangible investment protecting it somewhat from inflation. Lastly, there is something to be said for the satisfaction and peace of mind of owning my home outright, especially during such unstable economic times.

Thoughts and advice most welcomed.

Guest's picture
Siobhan

Well my mom did it this way, and that's what I plan to do myself. I'm 18, and i've already started saving. I'm gonna go to college, and get a good career so once that's done all ill have to do is rent and save until I can afford my dream house.

Guest's picture
Tom Dahl

Loved the article..I am about to receive an inheritance and wanted to ask for some advice.. i want to buy tho houses with the inheritance and rent them out..any tips, advice, do's and dont's would be greatly appreciated

Guest's picture
Guest

Personally I am 18, I am looking to buying a house in Florida with cash, I will be graduating high school this year and am going straight into the work force, not because I am not smart enough for college or anything of that nature I find it more fitting to my lifestyle. I will be buying a house (with cash) in aprx. 3 years if nothing goes wrong. Then instead of paying insurance I will be investing a large chunk of cash each year into a (personal investment fund) and I will become personal insured by the time that I am 30. I will be living below my means and working most days instead of "living my life" but I will be debt free and I plan to live my life debt free, I feel if you don't have a mortgage holding you back financially then you have a better chance of becoming financially independent.

Just a non-average high school student

Ps. High school economics is a JOKE...

Guest's picture
Guest

Morgarge is bad idea ots just fancy way of saying renting with slavery agreement it really is most people ars never able to pay it off in their life time.

Guest's picture
Tim

Owning a home outright brings a lot of peace of mind and security. Property taxes will always be there.

However, if you want to move and sell be prepared to wait.

Guest's picture
leslie

I looked at a house yesterday that the bank bought back at sheriffs auction. the bank is selling it for $23,000. Tax assessors had the 100% value at $63,000 or so. If I had about $23,000 I would buy it. Doesn't need a whole lot of work. And what I would save in rent/mortgage I could put into the house. We are paying $800 in rent. So imagine putting $800 in the house for the next 1-2 years.