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Hi, I'm going to buy a house for the first time in America, and I'm not sure what type of payment methods suites me better. To give you a glance of my current financial situation;
I have $X00,000.00 in the bank accounts.
I want to buy a house that's priced around 70% of the saving. The price is slightly over the average of the houses that have been purchased recently in the area.
I have a stable job.
I have no debt.
I am a 40 years old single (no plan to get married).
I don't have a child.
What would you recommend, buy a house with cash or mortgage? And why? Or any advice would be appreciated.
I may take some heat for this, but i was told some years ago that it's always a good thing to carry a small note on your property as the lender has a vested interest, and if any things come up (and i don't mean one falling behind in their payments) they will protect your/their interest. It gives one some protection.
Depends on what your motives are. No one but you and your financial planner can answer this without knowing your situation. Given that we don't know where you're located and how much 70% is of your savings, we can't offer any real advice. If it were my money, I would do a 50% LTV mortgage and keep my cash close to my pocket.
I'm going to buy a house for the first time in America...
I'm not sure what type of payment methods suites me better.
What would you recommend, buy a house with cash or mortgage?
And why? Or any advice would be appreciated.
There are very few working people ABLE to buy a house using all cash.
There are even fewer working who can do so responsibly.
There are very few instances where an employed 40 something buyer will
be better off sinking the full purchase amount of money into a purchase.
(for the older, retired, etc it begins to make more sense)
The price of house most buy is rarely based on how large their portfolio is.
Even for those who will might this... they will rarely be wise to put more than 20%
of those reserves into purchasing a house. 10% would be better.
Income level (and ability to pay rent or a mortgage) is the number to focus on.
Look for a home that is priced at 2-3X your annual income.
Use some of that cash for a big down payment (to avoid loan insurance).
Before you try and decide what option to take make sure a mortgage is an option. Do you have American credit and qualify for a mortgage? I haven't tried to use international credit in years but even then it was difficult. Get a referral to a Loan Officer who can potetntially help you out.
I think the biggest thing to consider is what rate of return can you get on your investments as opposed to the interest rate on a mortgage? If you can get a low-interest loan, you should be able invest at a higher rate. In that case, I would finance the purchase, if possible.
There is also the added security of having a good amount of cash or liquid assets available in case of emergencies or other opportunities.
Of course, you could always go somewhere in the middle and just put a higher amount down, and finance less. Another thought is to pay cash for a property and then refinance it later on (but you would need to first determine that you can do so). Under some circumstances, you can negotiate a better price for an all-cash deal, so that is probably the only reason you would need to consider that option.
Also, since you've never bought in the U.S. before, you should retain an experienced real estate attorney to represent your interests. It's a small added cost, but an attorney could save you a lot of money and headaches. Good luck.
The others above offer great advice. I will keep mine short and sweet.
This is all about 'leverage' . It is the financial concept where you expand your assets by using credit and carrying debt. The other concept is to avoid debt and the interest on the debt. It also avoids possible default your debt when times are bad.
In this case, the point is two fold. Pay for your house and be cash poor, or finance the house and keep your cash.
Many have suggested a middle ground and most of the time I agree with that view.
I prefer to have no debt, but if you are prepared to invest long term into mutual funds then its worth carrying the mortgage and using the interest deduction will pay off as your investment portfolio increases.
The other side is that you have no mortgage payment and you are not required to get home insurance on your property.
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