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Stephanie, Home Buyer in Saint Peters, MO

If purchasing a house with cash from an inheritance is a down payment required?

Asked by Stephanie, Saint Peters, MO Thu Oct 18, 2007

If purchasing a house with cash from an inheritance is a down payment required?

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I believe what you are asking is how much should your earnest money deposit be. The earnest money is simply a sign of how interested in the property you are. If your earnest is $500 vs. $2,000 then you have a lot less to lose if you back out of the contract and the seller gets to keep the keep the earnest money if you are at fault. However, if you are really serious about the house and a competing offer comes in, your $2,000 in earnest is more appealing to the seller. Whatever your earnest money deposit is, it will all be credited toward the sales price of the house.

Also, I don't think you should take out a loan. Yes interest rates are low, but why would you give your money to a bank? Use your cash to pay for the house and make monthly payments to yourself (in the form of a good mutual fund) instead. That way you're earning interest instead of paying it. The goal in life is to owe money to NO ONE.
1 vote Thank Flag Link Thu Oct 18, 2007
Thank you all for your advise.. We have been working with a realtor from the begining but she didn't fully explain step by step of buying this house and it just kind of blind sighted us.. We have a contingent contract on the house now and yes we are paying 100% cash .. Our realtor has been in great communication with the seller's agent so we have come a long way in the last two weeks.. we just had the inspection and are ready to move forward.
1 vote Thank Flag Link Fri Nov 2, 2007
Sorry Stephanie, didn't see your response. If you're paying cash this IS your downpayment!! However, I'd be very wary of placing CASH into ANY real estate transaction in this marketplace! If values are going down say at 5-10% for the upcoming year (various predictions use these numbers) then you'll loose, if we use my $200,000 example below, $10,000 to $20,000 of your CASH. Put that cash into a treasurey note and you'll make $10,000! You need to talk to a CPA as they can look at your particular tax picture and decide which is the right way to go!
1 vote Thank Flag Link Thu Oct 18, 2007
The last pro could not have said it any better...and with a substantial downpayment, you can probably get a really decent interest rate also.
Web Reference: http://www.iansellsnola.com
1 vote Thank Flag Link Thu Oct 18, 2007
Stephanie -
I agree with Dale and would add your tax professional and financial planner to that mix. If you don't HAVE a financial planner, this would be a good time to interview and get one to put your real estate investment into your retirement plan (even if you are only in your 20's...plan NOW to retire comforatably). By the way, if you go to the library and check out some real estate investment books you might want to think about leveraging that inheritance by using some of it to purchase a personal home and some for income producing investment property. Just a thought.

Trisha Lee, Columbia, MO
0 votes Thank Flag Link Fri Dec 14, 2007
OK, somethigng that everyone seems to be ignoring, but is very important, even if you are paying 100% cash for a home, you need to make VERY sure that you have an appraisal rider with your contract and that you watch the deadlines very carefully. They are different for a cash deal then if you are getting a loan.

Your Realtor should be very carefully guiding you through this. I definately agree with Trish from Columbia when she noted that you need to determine where your money will make the most for you, along with the many who noted that you should do what you are most comfortable with, but to be the most comfortable, you really need to be well educated on what your options are and how everything is influenced. For example, if you pay cash for the home, you don't get the tax benefit on your taxes of paying the interest on the loan. Sit down and have a LONG conversation with your agent and a mortgage person so you get all the information.
Web Reference: http://www.yourstlhome.com
0 votes Thank Flag Link Wed Dec 12, 2007
Hi Stephanie; thanks for your response. I'm glad everthing is working out for you! Good Luck, Connie
0 votes Thank Flag Link Fri Nov 2, 2007
the funds were available and for long term security this is what worked best.
0 votes Thank Flag Link Fri Nov 2, 2007
Hi Stephanie! I'm curious as to why you decided to pay 100% cash for this home. Connie
0 votes Thank Flag Link Fri Nov 2, 2007
Stephanie:
Someone else on this forum said she was asking questions here because she didn't want her REALTOR to think she was dumb. Everyone responded with, "NO, ask your Realtor, that is what they are there for, to answer your questions and educated you." Real Estate and financing is VERY complicated.

I know it has been two weeks since you originally asked this question, but do you have a Buyer's Agent working for YOU? While re-reading your posts, I got the feeling you were working with the Seller's Agent (Listing Agent) or possibly even no Realtors at all. Please, let us know how things are going.
Ruth
0 votes Thank Flag Link Fri Nov 2, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
Trisha:
I believe you are just adding to the confusion of Earnest Money verses Down Payment on a Loan. You say,
"but you avoid PMI (private mortgage insurance) if you put 20% or more down on a transaction" when you are referring to Earnest Money and getting it back if the sales falls through. PMI is only relevant with a mortgage and has NOTHING to do with Earnest Money.

I do agree that Stephanie needs to get the advice of a financial adviser to make her money work for her the best way possible. However, sometimes personal philosophy might overrule financial decisions. Honestly OWNING your own home and not being "in debt" is something to be respected. Real Estate historically has always been a persons best LONG TERM investment.

Sorry, I know I'm sounding too harsh on you Trisha. I hope you can take it because I really want Stephanie to know that she has a choice. Even if a hundred financial advisers, mortgage brokers and Realtors told her to get a mortgage because it makes more sense financially, all investments have risks. If Stephanie owns her home free and clear and has enough money to pay the taxes every year, that is the SAFEST investment she can make.

Sincerely,
Ruth
0 votes Thank Flag Link Fri Nov 2, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
Just another slant on this question to ponder. You might want to talk to a professional financial planner and tax person to see the best way to go in this purchase. You didn't say how much money you got or anything else about your finances. Interest rates are at an all time low, properties are ripe for purchasing for investment and there might be another way to make your money work for you.

Earnest money is required to purchase property. The amount varies by market and transaction but you avoid PMI (private mortgage insurance) if you put 20% or more down on a transaction. All that money goes towards the purchase of the house if the transaction goes through so think of it as a place holder. If the transaction does not close and you follow all the rules of the contract (time restraints) you get the money back.

Just because you CAN pay cash for a house doesn't mean you SHOULD. This is where guidance from a financial expert and your REALTOR can really help. If you have other income, look at structuring your payments to your comfort level and doing something with the rest of the money. There are a million ways to make that inherintance monay work for you and STILL buy the house of your dreams. Good luck and I hope you ask lots of questions and don't take one answer as the gospel (except the part about having to put down earnest money - that is gospel).
Web Reference: http://www.TalkToTrisha.com
0 votes Thank Flag Link Thu Nov 1, 2007
I'm so glad Elizabeth was able to clarify the situation for you. So to answer you question, yes Earnest Money (EM) is required. The amount of EM that you offer is up to you and is almost a game of strategy. A Realtor can advise you how to play this game. You could offer full asking price for the home and $1 in EM with no contingencies. The offer could be accepted or rejected. Or you could offer 20% below asking price with 100% EM (80% of the asking price) and the offer could be accepted or rejected.

Your Realtor should advice you along the lines of offering twice the difference of sales price verses list price, if the house is priced right and anywhere from a few thousand dollars in EM to 5% of the list price as EM. If you offered full asking price and 10% EM, you would be almost guaranteed that your offer would be accepted.

Good luck,
Ruth
0 votes Thank Flag Link Sun Oct 21, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
Stephanie,

You find yourself in a great situation! Anytime you can purchase a home using cash instead of taking out a loan, you certainly should do it. By paying cash, you not only have immediate "true ownership" of your home, but you also will save yourself tens if not hundreds of thousands of dollars over the course of what would have been the loan term.

As far as putting down earnest money, work with your Real Estate Professional on this. Right now the market is flooded with inventory. This means that homes are not selling as fast, and sellers are anxious to get an offer on their property. This combined with the fact that you are a cash buyer puts you in the driver's seat. The less you offer in earnest money, the less you have to loose should you change your mind, or the deal falls through. So, be prudent in what you do, and keep in mind there are plenty of homes available right now, be selective, and find an agent who will work hard to negotiate for you.
0 votes Thank Flag Link Sun Oct 21, 2007
Yes that is exactly my question Elizabeth.. Thank you.. is this earnest money necessary? or is it just more of a guarantee to place my offer on the house?
0 votes Thank Flag Link Thu Oct 18, 2007
I am buying a new house with my inheritance I have enough to pay for the whole amount of the house in cash.. do I need a down payment to put in my offer on the house?
0 votes Thank Flag Link Thu Oct 18, 2007
I belive your asking if your "share" of the inheritance is used to buy the inherited property? Or are you taking part of an inheritance and buying ANOTHER property? Let me know if this example resembles yours: Estate of the deceased and your inheritance is soley based in the home of the deceased. Example: $200,000 estate with value of home $200,000. You are one of 4 heirs. Your share then is $50,000. The fairmarket value of the property, for example's sake, is $200,000. Total value of the estate $200,000, your share $50,000. All other heirs will get their share once the property is either sold or you purchase it and the new loan funds go to escrow and everyone is paid off. But what you do is "leave" your inheritance in the pot, get approved for a loan, and you're putting "down" 25%. This should be NO problem as long as you AND the property qualify for the loan and get the appraisal. You'll have additional funds required for closing depending on the area you live; title, escrow, attorney fees, survey, etc. Perhaps you can clarify if this example is similiar to your situation.
0 votes Thank Flag Link Thu Oct 18, 2007
I am paying 100% cash for the entire purchase and was told I need a down payment ... Is this true?
0 votes Thank Flag Link Thu Oct 18, 2007
I'm semi-confused by your question. If using cash from an inheritance to purchase a home, why not put enough cash down to secure a good interest rate, avoid PMI, and have a comfortable payment? I wouldn't suggest paying cash for the entire purchase. Does that help?

Connie
0 votes Thank Flag Link Thu Oct 18, 2007
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