Down payment on retirement home

[zandrajohn]

I need some advice please.
My wife and I have retired and moved from Pennsylvania to sunny San Diego County, where we are planning to buy a house (perhaps when the prices stabalize a bit).
We have sold our home in PA, and the proceeds are sufficient to purchase another home outright.
We have enough to live on with our pensions plus, 2.5 % withdrawal rate from our IRAs, and do not really need to hang on to the proceeds from our house sale in PA, but what are the thoughts on holding on to part of it for an added level of financial security anyway? Would that make economic sense? How much downpayment would you recommend?
Advice would be appreciated.
Thanks

 

[honobob]

With todays rates more than 20% is just wrong! House will appreciate at same rate no matter what you have into it.

 

[SteveR]

Hi Zandrajohn,

The answer to your questions is "it depends."

How much to put down on a house depends on your personal financial situation and your ability and desire to carry a mortgage. Some folks hate owing anything while others see it as a way to hedge some of their stash in realestate while living in it at the same time.

How much to take off the house buying table also depends on what you will do with the money and if you need it in the future. 2.5% from an IRA seems on the low side but it all depends on your income needs driven by expenses and desires for travel and toys. 2.5% of $2,000,000 is a lot different than 2.5% of $200,000. It also depends on how old you are and how long you live and your expenses during your life and your spouse's life. It also depends on if you have medical insurance covered or not. Healthcare is expensive and shows no signs of getting any less so.

There is no right or wrong answer here; only what works for you based on your financial needs and assets.

 

[honobob]

Hi Zandrajohn,

The answer to your questions is "it depends."

There is no right or wrong answer here; only what works for you based on your financial needs and assets.

Depends if you want to put your biggest asset at risk. Not to contradict SteveR from Utah but I'm not sure you understand CA real estate. Would you feel better when your $600,000 to $X,000,000 house slides down the canyon or is ravaged by a firestorm that it is paid and clear or that you only have 20% into it? What about buying new and finding out that it's built on a landfil/unstable property/mold contaminated/etc.??

Leverage is more than just working the mortgage, it's also about protecting yourself against unscrupulous developers, city planners, etc.
If you own 100% of the problem your position is 80% worse than if you only own 10-20%. IMHO

 

[zandrajohn]

Thanks for your responses.
Our pensions meet most of our needs, so we only need a small amount (2.5%) from our IRAs which are mostly invested in equities. I will be eligible for Medicare this year, and my wife will be eligible in 2010, so medical insurance is not a problem for us financially. If we want to travel a bit more, then we could take a bit more from the IRAs.
Our previous house proceeds are currently sitting in a money market account, and if we held back some of this "cash" from the next house purchase, and took a mortgage, then we would probably use part the remaining cash to pay the mortgage for 10 years or so, following which we would probably downsize to an apartment or a condo.
We have always lived somewhat simply, and I doubt that we will outlive our resources.
The only concern involved the pros and cons of a 100% downpayment versus a smaller one.
Any further comments from anyone would be appreciated.
Thanks

 

[zandrajohn]

I just read Hobnob's last post. You are right, I know very little about California real estate, but I am learning fast. I suppose that homeowner's insurance won't cover everything!
Thanks

 

[megacorp-firee]

I need some advice please.
My wife and I have retired and moved from Pennsylvania to sunny San Diego County, where we are planning to buy a house (perhaps when the prices stabalize a bit).
We have sold our home in PA, and the proceeds are sufficient to purchase another home outright.
We have enough to live on with our pensions plus, 2.5 % withdrawal rate from our IRAs, and do not really need to hang on to the proceeds from our house sale in PA, but what are the thoughts on holding on to part of it for an added level of financial security anyway? Would that make economic sense? How much downpayment would you recommend?
Advice would be appreciated.
Thanks

IMO, you are in the catbirds seat.
1) you don't need your the funds from your PA home to live on
2) your swr is low enough to ensure a safe retirement

If it were me, I would just go ahead and not mess around with the stress of making mortgage payments (and you won't have to take the extra mortgage payment money out of your swr). From my limited (almost 7 months now) experience in retirement, I want to have less 'infrastructure' stuff (like mortgage payments, ...etc.) to take up my valuable retirement time.
If you have any overriding reason to hold a mortgage (like tax deductions or something) then go ahead and take on a mortgage... in that case, given a good rate, I would see what the minimum a bank would want me to put down. If you are going to leverage, then do it right (maximum).

Full disclosure: I still hold my mortgage. I could pay it off, but it's at
4 3/8%, so I don't see the rush to do so

btw, I love the SD area... great weather, sites and things to do.
Good luck zandrajohn

 

[mathjak107]

we just bought a home for eventual retirement in pa in july. we had a choice of mortgage or buy out right. at this stage we decided to just buy it out right, no mortgage, done. 30 years ago i would have taken a mortgage but at this stage who needed it

 

[Bestwifeever]

These threads might not exactly answer your question but they provide some good discussion:

http://www.early-retirement.org/forums/f47/should-i-pay-off-mortgage-invest-money-30644.html

 

[megacorp-firee]

Depends if you want to put your biggest asset at risk. Not to contradict SteveR from Utah but I'm not sure you understand CA real estate. Would you feel better when your $600,000 to $X,000,000 house slides down the canyon or is ravaged by a firestorm that it is paid and clear or that you only have 20% into it? What about buying new and finding out that it's built on a landfil/unstable property/mold contaminated/etc.??

Leverage is more than just working the mortgage, it's also about protecting yourself against unscrupulous developers, city planners, etc.
If you own 100% of the problem your position is 80% worse than if you only own 10-20%. IMHO

so Honobob do you own a house? If so, do you recommend refinancing when you get down to say 30 or 40% equity? I have never heard this argument for not paying off your mortgage. Does insurance in CA, not cover your assets?
I am not criticizing the plan, just trying to understand it. Thanks.

 

[honobob]

so Honobob do you own a house? If so, do you recommend refinancing when you get down to say 30 or 40% equity? I have never heard this argument for not paying off your mortgage. Does insurance in CA, not cover your assets?
I am not criticizing the plan, just trying to understand it. Thanks.

I did not see this as a pay off the mortgage question but a we're moving 3000 miles away from home to make a major purchase and wonder if we should pay cash. Having a mortgage, usually affords some protection to a buyer through the appraisal and loan approval process. This is very common advice especially to people buying into new developments. In Ca I know several developments that were built on contaminated soil or unstable soil where the whole development had to be abandoned. There are also new developments that develop major builders defects that result in long term lawsuits. Even if your home doesn't suffer defects you'd have a hard time selling if you needed.

I like when one of these projects ends up on the news because all the homeowners are in an uproar and there's usually a local person saying everybody knew them houses weren't built right on the wrong location, etc. Even though your commitment is with the bank you'll always be in a better position by not having all your money in if something go wrong. Even in an established neighborhood I would not pay cash. Imagine the family getting sick a few months down the road and the neighbors telling you they always thought they were brewing meth there.

You can't insure for everything and even if you are covered it may take a long fight to get your money.

If you feel like paying the loan later go for it! i am in the camp of keeping a mortgage and have mortgages on income property that will possibly outlive me.