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.
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
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.
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.
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.
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).
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.
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.