Question Details

Sophie, Home Buyer in Orlando, FL

Is it a smart idea to pay for a house in full and not have a mortgage?

Asked by Sophie, Orlando, FL Sun Jun 15, 2008

so no money is wasted in interests and mortgage insurance?

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By the way, if you contact me, I would be more then willing to show you some homes that you can spend that money on, as I work in both Orlando and Tampa, for FREE of course.
Mike Ceparano
0 votes Thank Flag Link Sun Jun 15, 2008
No disrespect, but actually, I have heard of a paid in full home being foreclosed, it actually happens more then you think, between taxes and HOA due, and even lawsuits and judgments not being paid. You have the option of Homestead Exemption that will protect you in Orlando from the lawsuit and judgment part, as long as you qualify. Your best bet is to speak with a financial planner. It really depends if you will be using all your savings to purchase and leaving nothing for a rainy day. If your going to spend $200k on a home in cash and you still have $100k in the bank, then sure it may be a good idea. If you spend $200k and you only have $5k left in the bank, not such a good idea. What happens if the a/c goes, now your broke. In many cases, it always better to use someone elses money, then use your own. It really all depends on your total savings, your credit, your employment, your interest rate and several other things. Speak with a financial planner, just make sure he doesn't talk you into investing the whole thing and getting a full mortgage for the house, haha.
0 votes Thank Flag Link Sun Jun 15, 2008
Hmmm lets see, no house payment for 30 years???

If you have available resourses, pay with cash! I dont hear about anyone losing their "paid in full" home to foreclosure!
0 votes Thank Flag Link Sun Jun 15, 2008
You can drop mortgage after 2 years or when you get to 80% loan to value in most cases. You have to ask the lender.

As far as putting all your money in the house, I think you should contact a financial planner. Almost everything I have heard suggests you should diversify your investments. Don't put $200,000 in a house if it can go down by 20%. And as a previous poster stated, if you put 20% down and it goes up 20%, you doubled your investment.

If you have any debts whatsoever, those will definitely be better than paying on a house, since a debt will probably be at 8% or higher, which cost you more than a mortgage.
0 votes Thank Flag Link Sun Jun 15, 2008
While your house interest may be able to be deducted on your taxes if you itemize, you also have to think of the opportunity cost of what you could do with the extra money if you paid for your house in full. If you invested that money that would be allocated towards your housing payments, would you get a better return than if you used it towards your mortage? Plus, if you own your house outright and have any type of job loss or financial distress, you don't have to worry about your home and would be able to have equity to use to help your situation out. You might want to speak to CPA and see what the best use of your money would be.

0 votes Thank Flag Link Sun Jun 15, 2008
No. If you put down the most needed (20%), you are getting into a leveraged investment. Essentially, you will be earning interest (through appreciation) on the full value of the property for the cost of only 20% of the property.

If you have the cash assets to pay cash for a home, you will then have that 80% of the value of the property to invest elsewhere.

You should also appreciate the fact that you have to live somewhere. You can either rent, buy or throw your bed roll out under a highway underpass. Renting will likely cost you more, and you will have nothing to show for it but shelter over the next 30 years. Buying leaves you with a valuable asset at the end of the 30 years. Thus, it's not unreasonable to say that you should not consider the payments as a cost of the investment.
0 votes Thank Flag Link Sun Jun 15, 2008
Dear Sophie:
If you can put 20% down then you do no have to pay PMI. You home is one of the few right offs that the government stlill gives you so my advice would be to be to put the 20% down and make payments and get the tax benefit. You should consult a tax accountant for further information.
0 votes Thank Flag Link Sun Jun 15, 2008
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