Should I pay cash for a new home or take out a mortgage?

Asked by Michelle, Miami, FL Mon Feb 6, 2012

I am a first time home buyer. I have no debt and $250K cash so I can pay for a house upfront. Should I do this, or pay 20% down and get a mortgage? Additiona info: (1) the home is for my 88 year old father (for now) and Im not 100% sure Id live there afterwards... (2) Im not sure of how good my credit is these days.. havent lived in the US for over 10 years.

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12
Professor.wa…, Home Buyer, Deerfield Beach, FL
Mon Feb 6, 2012
Mr. Vega-Pacheco had a great answer - additionally, you may be able to purchase a condo or townhome (perhaps in a senior community, or one that is senior-accessible) for considerably less than the $250k.
1 vote
Antonio Vega…, Agent, Saint Cloud, FL
Mon Feb 6, 2012
Combine the benefits of both posibilities already mentioned by:
A. Getting a mortgage at 15 or 20 years (save 15 years of interest payments)
B. Place 50% down at purchase to get the best possible rate (keep 125K in cash for investment or emergency)

Tony Vega
Charles Rutenberg Realty
1 vote
Brian Rayl, Agent, Dallas, TX
Mon Feb 6, 2012
Michelle, this is a great question and a good problem to have!

There are advantages to both options.

1) Having a mortgage allows you to deduct the mortgage interest on your tax returns, giving you a great tax break. If your credit is not that great, but good enough to qualify, having a mortgage and making your payments on time will certainly help you build that credit.

2) Not having a mortgage means that you won't pay any mortgage interest, which will save you a ton of money. You won't have a monthly payment to make and the only costs will be upkeep, taxes, insurance, and the HOA fee if there is one.

Really, it depends on your particular situation. You need to speak with a lender to find out if you would even qualify first, and then speak with your financial adviser to see what the best option would be for you. You may even consider buying a few smaller homes for investment purposes. The Florida market is great for that right now.

Best of luck to you!
1 vote
Gary Hitchco…, Agent, Coral Springs, FL
Mon Feb 6, 2012
You need to speak to Michal Bander, Guaranteed Rate, 954-684-9227.
0 votes
Ronnie Bramer, Agent, Fort Thomas, KY
Mon Feb 6, 2012
Michele, I agree with most of the answers there is just not enough information to give you advice . I would ask myself the follwoing questions 1) what would you do with the house should your father not live there ? if you would plan on selling and could purchase a home at least 80% or less of current appraised value then it might make sense to go ahead and purchase. You wnat to make sure you can recover your cost or se a return on your investment. If you planned on keeping it and renting it out then I would pay cash , which would create a cash flow for you. Even is it set empty a few months outside of tax and insurance it would not become an expense to you. 2) where do you live at now ? the dollar could provide a safe haven as a place to keep your funds . 3) would you use it as a vaction home in the future ? if so, the current prices would make it a smart investment. Good luck with it.
0 votes
Nadine Mauro, Agent, Lake Worth, FL
Mon Feb 6, 2012
Hi Michelle,

If you haven't lived in the U.S. for more than 10 years, and are not sure if you would ever live in the house, why not consider renting a house for your father?

The choice to pay cash or get a mortgage should be addressed to a financial planner. There are pros and cons either way. At some point in the future you will want to sell or rent the house, be sure you're getting into a great neighborhood.

If I can be of further service please let me know.

Nadine Mauro
Highlight Realty
561-414-0864
NadineSellsHouses@gmail.com
http://www.floridahouseseller.com
0 votes
Gino Herring,…, Agent, Cooper City, FL
Mon Feb 6, 2012
Please give me a call. I would be happy to help you with your home search.

Gino Herring, SFR
United Realty Group, Inc.
954-770-5568
0 votes
Mark Sandulli, Agent, Boca Raton, FL
Mon Feb 6, 2012
Call me I would love to help.

Mark Sandulli
954-839-7406
Web Reference:  http://www.sfrea.com
0 votes
Angela Schra…, Agent, Pembroke Pines, FL
Mon Feb 6, 2012
Hi Michelle: This is honestly not an issue for a Realtor to answer - it's more of an issue for your financial advisor. A competent financial advisor will help you consider and evaluate all of your options with regard to the $250,000 that you have in reserve. I would have to hope that you currently have that money invested and that you're getting some kind of return on that investment. The question would come down to whether it would be wise to forego your current return and exchange it for this investment, or some other possible investment.

The whole point of having money is to retain it, and hopefully use it to earn more. You would only buy a property for $250,000 cash if that was a wise use of your funds, otherwise you should consider using someone else's funds (getting a mortgage). That's a financial advisor's expertise, and it would depend on things like your risk averseness, future needs, etc. For example, you mention that your father is elderly - will you have any responsibility for providing for his eventual health care needs? If you tie all of your liquid funds up in a property, you will find that there is a long turnaround in reclaiming that investment for other needs.

I hope you understand what I'm trying to get at - these are excellent questions, but Realtors are not in the best position to advise you, especially without knowing your unique personal circumstances.

To check on your credit, you can go to http://www.annualcreditreport.com. There are a whole lot of other sites and services being advertised out there, but this is the only one that the US Government has set up to provide the one free credit report that the credit bureaux are obligted to provide each year. The other sites talk a good game, but they exist for the sole purpose of selling you some other service, such as credit monitoring. Don't be fooled!

I do hope this helps.

With best regards,

Angela
Villa G Realty, Inc.
Tel: 954-816-7996
Web Reference:  http://www.villagrealty.com
0 votes
Bsinger, , Florida
Mon Feb 6, 2012
With rates were they are, the best suggestion is to obtain a mortgage. Keep the cash on hand for other investments etc. Please contact me to discuss your options.

Brad
Leader Mortgage Services
brad@leadermortgageservices.com
954-205-5444
0 votes
Ann Ryan, Agent, Doral, FL
Mon Feb 6, 2012
Hi Michelle.

One thing my colleagues haven't commented on is income. Unless you happen to be paid from the United States (you're a government employee overseas, or working for a U.S. based NGO), banks may not want to give you a mortgage, regardless of your credit score. Also, if you're not paying U.S. income taxes, the deduction of interest payments is not an advantage for you. If your father is 88, and you're not planning on living in the house, my suggestion is to make sure that the property you buy can be easily rented in the case that he is no longer to live on his own.
0 votes
Bill Eckler, Agent, Venice, FL
Mon Feb 6, 2012
Michelle,

Yours is a good problem to have......if the interest rates were not a favorable the decision would be an easy one to make. But with interest rates as low as they currently are many people in your situation are taking advantage of this opportunity to use available bank resources.

Our recommendation is to investigate loan availability with regards to interest rates and programs that you would qualify for and work the numbers. There's also the option of paying a larger amount in cash...ask your mortgage consultant for all possibilities before considering your options.

In the event your credit has slipped, it's unlikely that it would disqualify you from a mortgage...unless you have abandoned debt that's hanging over your head. Again a cloud that the lender can clarify for you.

Best of luck,

Bill
0 votes
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