Khan,

I think Bruce has an interesting point: if you believe that house prices will appreciate, then your "investment" in your home will increase in value. Whatever rate housing goes up, yours may track up with that.

If your alternative is to put the money in a bank account, you probably won't make as much in interest on that "investment" as rising house prices would yield, but there is little risk to your money in the bank. If, for example, house prices go up an average of 5% next year, then that would be better than an increase of 2% in a savings account balance. Besides, you have to pay taxes on the savings interest, making it even less of a return.

Having no mortgage payment to make does put the burden of paying taxes and insurance directly on you. You won't have a loan servicer to collect a small amount each month and then pay the bills on time for you. You will have to set aside the money and pay the insurance on or before the anniversary of your purchase, and pay the taxes to each goverment body that bills separately in January. There could be a single bill or 2 or 3 bills to make sure get paid.

The advantage of cash is that there is only a short wait between contracting and closing and low risk to the seller that you won't close. The seller also might be more amenable to giving you a discount on the price since you won't ask for closing costs for a mortgage loan. No, they won't go down 10-20%, but you might get a few percent additional off the price or maybe more. And, if you're a first time homebuyer, you can get the 10% up to $8,000 tax credit, too.

Khana,

I hear both ways..... some people like the idea of not having a mortgage. Economically if you can borrow at less than 5% and invest elsewhere at a higher rate of return, then you should, borrow the most you can.

Congratulations on being able to purchase your first home with cash. Your question however could probably be more accurately answered by your accountant. If you pay cash, you don't have the tax write off for the interest that you would pay on a loan. Do you need the tax write off? What are your other options for investing your cash if you use a mortgage for at least a portion of your purchase? Other investments that you could put your cash in currently may not be as favorable as buying a home when the market is down and you are eligible for the first time home buyer credit. You also need to consider how long you plan to own the property since you will have costs involved in selling the property at some point.

In an type of investment, the object is to buy low and sell high. The current market for real estate in this area is probably as low as it will get so now is a great time to buy. However, you need to move quickly to take advantage of the tax credit which expires on November 30th. You must close on your new home by that date unless the government decides to extend the deadline. Lenders are taking at least 30 days to close most loans so if you are not under contract on a home now, you may be forced to pay cash to close by the deadline. However, if you pay cash, you can always finance the home later, you will just be paying some closing cost that you could avoid by closing on the sale and a mortgage at the same time.

For more information on the tax credit or buying your first home see http://www.TheFirstTimeHomeBuyerGuide.com. If you haven't found your new home, give me a call. We need to start looking immediately.

Khana you will hear many different views on this. I like the feeling of not having to pay a monthly payment to anyone.
On the other hand a home loan is the cheapest money that you can borrow. Don't cut your reserves to close when buying a property. If you can not keep at least 6 months to a year of expense money saved in the bank get a loan.

Just my opinion but you don't want to get a loan just because you need new tires.