Home Buying in 03842>Question Details

cc, Home Buyer in 03842

I can buy a house with cash but would honestly like to have a mortgage for tax advantage.

Asked by cc, 03842 Thu Oct 7, 2010

How do I get one with fair credit. Or should I pay for the home in cash and maybe be able to qualify for equity loan?

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Bill Eckler’s answer

Fair credit should work??????? Some of the best real estate values are currently coming from foreclosure purchases and banks like "cash" when it comes to these types of purchases. As a matter of fact, in many locations they will accept cash offers that are lower than financed offers with letters of pre-approval.

You find yourself in a very advantageous position by being able to pay cash or electing to take advantage of the excellent financing opportunities that are currently available. The nice this about your position is that you can hold your capital in reserve for future opportunutues/needs and/or choose to pay off the loan earlier if you so choose.

Our recommendation is to meet with several loan specialists to explore you options prior to making your decision. Your dilemma is a nice one to have....

Best wishes,

1 vote Thank Flag Link Fri Oct 8, 2010
Taking a loan for "tax advantage" is a hugely false savings. Let's do the math.

Only the interest paid is deductible, and only if you file using itemized expenses.

Let's say you pay $5,000 in interest expense for the whole year, and let's assume it's all deductible (which, depending on your situation, it may or may NOT be - check with your accountant). You get to deduct as an itemized deduction that $5,000 in interest expense. Assuming it drops dollar-for-dollar to reduce your taxable income (and it might not - again, check with your accountant) you'll save taxes at the marginal rate you pay. If you're in the highest federal tax bracket which for 2012 is 35%, your actual dollar tax savings would be $5,000 x 35% = $1,750. Nice tax savings, right?

WRONG. You paid a bank $5,000 for the "privilege" of "saving" $1,750 on your taxes. Maybe you like the bank a whole lot better than the government (it's kind of hard to like either one, in my view), but it COST you $3,250 in real money. And if you're in a lower tax bracket, the "Cost" is even higher, perhaps much higher.

Why would you do something that's going to cost you (at best) almost 2 times the savings just to reduce your tax bill? I like to pay the smallest legal amount of taxes too, but paying interest when you do not have to makes zero financial sense.
0 votes Thank Flag Link Thu May 10, 2012
What do you mean by fair credit?? Do you qualify for financing now?

As far as buying, I think it is always to your advantage to buy with cash, if you can. Generally a better deal can be made because you can close quicker and the seller doesn't need to worry about your financing going through. At some point in the future, you can put a mortgage on the home which is easier to do once you own the property. Certainly consult a mortgage specialist before doing anything.

Good Luck
0 votes Thank Flag Link Fri Mar 9, 2012
Consider discussing the cash or mortgage issue with your tax professional, he/she can best advise as it relates to your specific situation--also do visit with any qualified loan officer, see what type of loan you may acquire, have your credit score checked, as their scoring is often different, etc.; if your score does need some improvement your loan officer may suggest great ways to do so in the fastest time--then go from there.
0 votes Thank Flag Link Mon Oct 11, 2010
It is tough to get a home equity loan at this time. I would suggest you speak to a mortgage officer to discuss if you qualify for FHA. I would let you know what you qualify for.
0 votes Thank Flag Link Mon Oct 11, 2010
Christina, home equity lines have some strict standards as well now, a lot of banks of eliminated or cut back these types of loans. Your better choice may be to obtain a new mortgage after 6 months to a year, different banks have different time requirements. Then you could get a 15 or 3o year fixed rate mortgage which will be lower than a home equity percentage.

Your first step should be to meet with a local mortgage broker, they can look at yoru credit and whole financial picture, they can then let you know if you should pay with cash and refinace or if you should get a mortgage right from the start. they will also be able to tell you how you can boost your credit score for the future. please feel free to email me with any questions.

for more info and advice on obtaing a mortgage , please see my blog
0 votes Thank Flag Link Mon Oct 11, 2010
Hi Christina!
There are many loan programs available in NH for buyers with fair credit. I would also suggest contacting a mortgage lender to find out your options.

I am in Southern NH - let me know if I can be of any help!
0 votes Thank Flag Link Fri Oct 8, 2010
Dear Christina,
The home equity line is a good solution to having cash available once you purchase. Make sure you look over all the details, many lines are open for 10 years with a re-check of your financial situation / credit at 5 years. If you have the ability to pay cash for a property, you will be putting yourself in a great buying position, able to negotiate the purchase price because a cash offer is most often the strongest offer presented to a seller. With a good agent working on your behalf, you could save far more than you would paying out for interest on a mortgage, while receiving the tax benefits of having one. If you are interested in working with a "Home Buyers Agent" and are not currently, please contact me so I can help you. I have several mortgage specialists that I work closely with that would be happy to sit down with you and go over options that would best meet your current and future needs.
Nicole Bizzaro, REALTOR
Keller Williams Coastal Realty
0 votes Thank Flag Link Fri Oct 8, 2010
When my husband and I were in a similar situation, we arranged for a home equity line of credit at the same time that we purchased the house. The interest rate on that HELOC remains incredibly low, and it's free to have; there is no cost unless we draw upon it.

So, I would make this decision based upon whether I could get a HELOC immediately or not, and at what interest rate. That way, if you need cash after purchase, you will have access to it.

Usually the tax advantages you cite aren't enough to offset the mortgage expense. Run the specific numbers and see for yourself, see which strategy is less expensive for you. You'll probably find that paying all cash is the most economical move.
0 votes Thank Flag Link Fri Oct 8, 2010
Hi Christina. Cash is king. Buy for cash and tap it out later if you want. When you own a property free and clear, nobody can take it from you (providing you pay taxes, HOA, etc.), b/c it's yours! Cash is always best.

Scott Miller, Realty Associates, Boca Raton, FL
0 votes Thank Flag Link Fri Oct 8, 2010
Dear Christina,Congradulations on having cash in this economy and even fair credit when many people have no credit and no cash!!! But, think this through, just because you could use a mortgage write off, doesn't mean that you don't care what the interest rate is! I'm not a mortgage broker, but I don't think equity loans will be as low in interest as conventional loans, so I think you should consult a good loan broker, particularly one familar with improving your credit rating, and maybe you will qualify for a better loan and a better house. The question I would want to find out from a lender, is whether I would be better off to pay off some debt with you money and get a larger mortgage in return. In other words, can you switch credit card debit into mortgage debt at a lower interest rate by paying off some credit cards. Just an idea, I'm not the pro, go seek advice from someone who can best address these issues. Best, Terry Bell, Realtor, Santa rosa, CA
0 votes Thank Flag Link Thu Oct 7, 2010
Hi, Christina,

As Kevin mentions, there are several different scenarios and a good lender will be able to answer your questions and guide you through your available options.

If you aren't currently working with a lender, please let me know. I'll be glad to forward a couple contacts for you that my clients have been very pleased with. And if you would like some help with finding a property, I'd welcome the opportunity to help you with your home search.

Good luck!
Web Reference: http://www.masiello.com
0 votes Thank Flag Link Thu Oct 7, 2010
Getting creative, I love it. The problem with fair credit is that no matter what you put down, the interest rate can offset most tax advantages because many of the lenders who will approve you need to take a class on ethics. I would pay for the home in cash only if you can talk to a lender (before you purchase the home) who will be able to approve you for the equity loan. Lots of places have requirements of owning the home for more than 2 years, so watch out for that.

In your situation I would contact a lender to see what they suggest to you. There could be things done to help your credit score that you are currently unaware of.
0 votes Thank Flag Link Thu Oct 7, 2010
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