Buy a home with cash?

[hogfan55]

I would like to get some feedback on my situation. Me and my wife are 65. I’m looking to move to a retirement community, probably Florida. I have enough savings and investments to pay cash for a home and have a couple hundred thousand left. I have no plans to leave an inheritance. My question is this: Should I pay cash for my home or take advantage of the record low interest rates to pay 20-25% down and finance the rest, leaving a larger nest egg in dividend stocks and income funds? Any feedback would be appreciated.

 

[Rambler]

Well, if you can get in while the rates are so low, and find some good and safe dividend payers or dividend funds that will pay more than the cost of capital for the mortgage, then get a mortgage, unless having a paid off home is emotionally important to YOU. It is emotionally important to me to have a paid off home, but it isn’t the best “business” decision. If you look at it as a business decision, and have other things you’d like to do with the money, then the mortgage is the way to go. If you won’t sleep at night because of having a mortgage, then by all means, pay cash.

 

[Dtail]

I am in the camp of no debt in retirement, so bought our retirement home with cash.
Many folks on the other side of the equation on this site.

 

[W2R]

I agree with Rambler. Do what feels right to YOU. As a group, the ER Forum is all over the place when it comes to "mortgage or no mortgage", one of our most hotly debated questions.

Like DTail, I paid for my Dream Home in cash. I bought it back in 2015, and I have never had the slightest doubt that buying it in cash was by far the best decision (FOR ME). I can read the most dire economic predictions and still know that no matter what, I have a wonderful home to live in as long as I pay my property taxes (which are fairly trivial here).

 

[kjpliny]

I paid cash for my home, but I still have a $1400/mth payment for property taxes. The monthly payment with a mortgage would have been too painful. Had I put all the money into the market back then, I'd have an additional million $ or more in net worth than I currently have. I still sleep well at night though.

 

[Dash man]

I’m in the no debt camp. But only you know what your situation would be if you took a mortgage, invested the rest, then the market ranked for a few years.

 

[Jerry1]

If you have to pull the cash out of a tax deferred account, that may make me lean toward borrowing. I’m maxing out the 12% tax bracket. If I had to take a couple hundred grand out of my IRA, I’d have to pay 22% on that entire amount. If that’s your situation, it favors borrowing. For that reason, I took a $100K loan out for my pool build. With the servicing of that loan I can still stay under the 22% bracket. The fact that the interest rates are so low is a big bonus too.

If I have the cash in an after tax account, I’d pay cash for the house. I like owning my house and it feels pretty darn good walking into closing with a check and walking out as the full owner of the house. Hard to quantify that feeling.

 

[Samething]

I just bought a house for cash. Proceeds from the sale of my old house + 5.1% of my investable. I had been holding after tax funds earmarked for that purpose. I don’t want a mortgage in retirement.

 

[ERD50]

Here's a reply you have not received yet: BOTH! (same answer to the question "Mary Ann or Ginger"!)

Pay cash, that gives you an advantage as a buyer in this crazy, crazy real estate market right now (never seen anything like it - assuming your market is similar).

Paying cash means the seller doesn't need to worry about your mortgage application or appraisal falling through. That's a big advantage in a seller's market.

Then, after you are in the house, go apply for a mortgage that is at historically low rates - the market has historically always been better than current market rates.

(edit/add): I am using a Line of Credit against my portfolio, so I won't incur cap gains taxes from selling my portfolio to fund the home.

-ERD50

 

[PoorOldCountryBoy]

OP Are you selling your old home? If so you could finance the purchase of the new one then have the security of paying it off when the old one was sold. If not it's just simple investment math - can you make the interest rate on the loan multiplied by your future tax rate?

 

[teejayevans]

You may not have a choice, sellers are getting multiple offers and demanding cash. I personally ran into this twice.

 

[JARON46]

I would like to get some feedback on my situation. Me and my wife are 65. I’m looking to move to a retirement community, probably Florida. I have enough savings and investments to pay cash for a home and have a couple hundred thousand left. I have no plans to leave an inheritance. My question is this: Should I pay cash for my home or take advantage of the record low interest rates to pay 20-25% down and finance the rest, leaving a larger nest egg in dividend stocks and income funds? Any feedback would be appreciated.

If you pay cash you do not have to pay several fees. Loan application fee, mortgage title insurance, points?, and probably many more.

 

[Surewhitey]

If you pay cash you do not have to pay several fees. Loan application fee, mortgage title insurance, points?, and probably many more.

This is why we have paid cash for the last 2 homes. No closing & 10 minutes at the title company. Super easy. We believe that it gave us the edge and lower price at the time too.

Credit unions may give you a sweet rate with minimal closing costs if you are inclined to borrow a little after you buy.

We paid off our first mortgage with a second mortgage from the CU back in 2005. Lowering our rate & only a $100 loan fee. This may be different now, but it worked out at the time.

 

[GTFan]

Here's a reply you have not received yet: BOTH! (same answer to the question "Mary Ann or Ginger"!)

Pay cash, that gives you an advantage as a buyer in this crazy, crazy real estate market right now (never seen anything like it - assuming your market is similar).

Paying cash means the seller doesn't need to worry about your mortgage application or appraisal falling through. That's a big advantage in a seller's market.

Then, after you are in the house, go apply for a mortgage that is at historically low rates - the market has historically always been better than current market rates.

(edit/add): I am using a Line of Credit against my portfolio, so I won't incur cap gains taxes from selling my portfolio to fund the home.

-ERD50

I may be dense but don't understand what the purpose of a LOC is after you paid cash for a home. If you're talking about taking out a HELOC at say 4% and then dumping that back into the market (to replace the cash you took out), that's not something I'd want to do.

On a similar line, we're wondering what the best way is to buy a house with cash when you're looking to sell your house first (and use the proceeds for the new house). The options I've seen mentioned are sell first then rent somewhere (short or long term), or take out a HELOC on your current house and use the proceeds to buy the new one, then sell your house and pay off the HELOC.

I don't care for the first option because you have to move twice, but this market is crazy so I'm not sure what to do.

 

[hogfan55]

Thanks for all the responses

Thanks for all the suggestions. I’m still torn though. If mortgage interest was 4% or more I would definitely pay cash since I know I couldn’t earn that on investments without taking risks I don’t want at this stage of life. The two main reasons I am considering the 30 year mortgage is
A. That I have no plans to leave a paid off home to anyone so that is not a factor
B. More than likely my 30 year mortgage will last longer than me and my wife so why not keep my assets to enjoy travel, etc. So theoretically I will not have to pay back the full borrowed amount while living. Whatever balance is left on my mortgage if we pass before 95 will be paid with the equity and I guess I can leave the rest to a charity? In this scenario I would be getting more home since I don’t have to use most of my assets and my money I keep I can use and invest and make about the same percentage or more than the mortgage interest.

As for the great feeling of not having a mortgage payment that is great also. I have never enjoyed paying interest and never borrowed unless absolutely necessary but at this stage of life and the historical low interest rates it sounds like an option. Whatever I decide it looks like there is no cut and dried answer. I guess that’s why the subject is debated so much. Thanks for all the input.

 

[hogfan55]

One last question. About how much would I save on closing costs paying cash instead of financing?

 

[ERD50]

I may be dense but don't understand what the purpose of a LOC is after you paid cash for a home. If you're talking about taking out a HELOC at say 4% and then dumping that back into the market (to replace the cash you took out), that's not something I'd want to do.

On a similar line, we're wondering what the best way is to buy a house with cash when you're looking to sell your house first (and use the proceeds for the new house). The options I've seen mentioned are sell first then rent somewhere (short or long term), or take out a HELOC on your current house and use the proceeds to buy the new one, then sell your house and pay off the HELOC.

I don't care for the first option because you have to move twice, but this market is crazy so I'm not sure what to do.

The LOC was to come up with the cash for closing (set up before, not after). We put our house up for sale only after we were set for closing on the new home. If the new home purchase fell through, I didn't want to be forced into buying something (or renting) because we had to get out of our current home.

So you could view the LOC as a "bridge loan", between buying our new-to-us home, and selling our old home. And it will be if/until I can get good mortgage terms (it will be an 'asset-based' loan, not sure if rates are as good on those). Or I could just hold the LOC until/if/when rates on it go higher than I am comfortable with (it's not a fixed rate).

-ERD50

 

[Dash man]

One last question. About how much would I save on closing costs paying cash instead of financing?

That depends. You can choose to have an appraisal or survey, or decide not to. You’ll avoid loan origination fees and maybe some documentation fees. You’ll still have to pay any transfer tax and property tax, along with title processing fees, title insurance, HOA fees and capital contributions some HOAs charge.. Fees can vary by location.

 

[RetireeRobert]

Pay cash.

1) As mentioned by other posters, this is the craziest real estate market, pretty much nationwide, any of us have "ever" seen (I just had a real estate agent here in western Oregon say "nobody has ever seen a market like this".) Sometimes, the only way to get an offer considered for a house you want to buy is to offer cash. Even then, you may still have to bid over (sometimes way over) asking price. At the least, an all cash offer will make your offer stronger than competing offers where mortgage is needed.

2) You will be (or remain) debt free. A nice way to be in retirement. Contributes to your "bulletproofness" quotient.

3) You will save closing costs on the home purchase. Not the least of which are "points" not paid on origination of a new mortgage. On a several hundred thousand dollar mortgage, points can amount to several thousand dollars just by themselves. Those points saved can pay for a lot of travel!

 

[Souschef]

I bought our new home with a HELOC on the old one as I turned it into a rental. When I sold it some years later, I paid off the HELOC and split the balance among our four sons.

 

[Sunset]

Normally I'd say pay cash.

Does OP have LTC insurance ?

If not then look at what would happen when/if one of them goes into a nursing home.
A paid off house will be available for the other spouse to live in, even if medicaid puts a lien on the house.

A house with a mortgage, means the remaining cash gets spent, and the mortgaged house may be too expensive to carry for the remaining spouse, even if medicaid would only put a lien on the house.

 

[RetireeRobert]

Normally I'd say pay cash.

Does OP have LTC insurance ?

If not then look at what would happen when/if one of them goes into a nursing home.
A paid off house will be available for the other spouse to live in, even if medicaid puts a lien on the house.

A house with a mortgage, means the remaining cash gets spent, and the mortgaged house may be too expensive to carry for the remaining spouse, even if medicaid would only put a lien on the house.

^ ^ ^

Yes, that, what he said!

 

[ExFlyBoy5]

Here's a reply you have not received yet: BOTH! (same answer to the question "Mary Ann or Ginger"!)

Pay cash, that gives you an advantage as a buyer in this crazy, crazy real estate market right now (never seen anything like it - assuming your market is similar).

Paying cash means the seller doesn't need to worry about your mortgage application or appraisal falling through. That's a big advantage in a seller's market.

Then, after you are in the house, go apply for a mortgage that is at historically low rates - the market has historically always been better than current market rates.

(edit/add): I am using a Line of Credit against my portfolio, so I won't incur cap gains taxes from selling my portfolio to fund the home.

-ERD50

This is a good answer. Paying cash makes buying so very much easier and can be quite enticing for the seller. You also save a LOT of money in closing costs.

As far as getting a mortgage AFTER purchase, this might be a little more challenging...at least if you are seeking a 100% LTV loan. A HELOC could be useful in case you might need a cash infusion after the cash purchase.

We bought our last two homes for cash and would highly recommend that, but we have "lost out" on some significant increases in our investments with how the market has performed. Then again, we had some significant gains on our Atlanta house (and no cap gains taxes!) and if we were to sell our current house, we would probably do pretty well with that, too. OF COURSE...this fact can't be predicted so it's more of a "what makes you comfortable" situation (in regards to cash/finance question).

 

[Teacher Terry]

I decided to take a tiny mortgage buying my condo so borrowing 85k. The payment is small and I took a 30 year loan. On the house we are in we paid cash because it was a foreclosure and that’s what the bank required.

 

[sakowitzm]

Interesting... one of the early responses said that you were likely to get about a 50/50 split in responses. However, nearly every response advised paying cash. Well, I'll take the other side.

I've signed a contract and will soon close on a brand new house in an active adult community. When I was in my 50s (I'm now 62), I savored mightily when we paid off our mortgage. But today? With rates so low I'm going to finance the new home and use the cash from my current home sale to invest in the market. Slowly, over time, given the current highs. And I'm satisfied with getting 1-2% on the balance while I wait.

Between real estate tax and interest paid, I will have well more than enough deductions to itemize, and so the Government will help to make my monthly payment.

For me, it's *nearly* a no-brainer. I'll sleep well at night.