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Thanks for the responses. Sounds like there is much to consider. If I do no loan, does a appraisal still happen? If so how is that triggered?
It would be a conventional loan.
I will be buying in WA state.
Thanks for the responses. Sounds like there is much to consider. If I do no loan, does a appraisal still happen? If so how is that triggered?
It would be a conventional loan.
I will be buying in WA state.
No if you are paying cash for the home you do not need an appraisal but you should get an inspection. An appraisal is only required by a bank when you get a loan so that they know that the value of the house is worth the money they are lending you.
For a conventional loan the bank would order the appraisal. If the home appraises for less and you can't negotiate with the seller to bring the price down or don't want to pay the difference you will not get the loan unless maybe you put a large deposit down and they will finance the rest of the loan.
While it’s completely true that with interest rates low, you can do better in the market or other investments than the low 4-5% interest rate costs you, I’ll play Devil’s Advocate and say not everyone cares about that, either. It’s also about diversification of assets and maintaining a certain monthly expense level. I already have more than 10 substantial investments, I really don’t need more of them, not to say they’re not nice, and keeping a lower monthly overhead protects me against swings in my income that buying stocks doesn’t do. Then I’d have to sell the stocks to pay my bills, potentially at bad times for the market. It doesn’t make sense. By parking more cash in the home, I’m still essentially earning 4-5% on my money by saving that, but securing a lower monthly cost of living.
Then again, I’m speaking as someone who makes all of my money from investments and my company, no salary or wages. I don’t think there’s anything wrong with a hybrid approach either though, I also own the house virtually without debt (92% equity) but I intend to get a larger mortgage later this year on a new home while putting all of the equity back into the new home. Sometimes it’s just a practical matter - I don’t like any house that I could afford to pay with cash, we want something nicer and need that mortgage.
I am a preferred lender for a new 55+ community. There have been 150 sales so far and it's about 50/50 cash buyers and those taking out mortgages. A lot of the buyers are putting 50% down and keeping the rest in their investments.
It depends upon how long you expect to stay in the house, and whether you have a better use for the money. A 30 year mortgage can still be gotten for under 5%, still incredibly low when you consider historical rates. For those of us who lived through the high inflation era of the 1970s, we remember mortgage rates (and inflation) in the mid to even high teens.
We bought a vacation home a few years ago that cost more than the value of our primary residence. We took an 80% mortgage on it for 30 years for about 3.65%, figuring that at some point in the next 30 years, there would be high inflation. So far, we're losing that bet, but we've still got about 25 years to go. And meanwhile, with the cash that we didn't spend on the house, we've bought for cash several rental properties that bring in about 10-15% profit on the investment, and have also increased in value. So we put the money that we could have put into buying the house outright, into an investment that gave a much better return. But we know the run down rental business.
If you do NOT have a better place to put that money, if you're the kind of person who considers money to be "perishable", meaning if you have it, you spend it before it spoils, if you're not good with saving, then by all means you're better off buying the house outright, so that you won't blow the profit from the sale. But I bet you're not like that. If you have a better way to invest the money that is quite safe, and brings in over 5%, then take the mortgage and invest the proceeds of the sale of the previous home.
Buy outright.
Your home will garner appreciation at the same rate as some of these stock market debacles.
Ever read your mortgage papers? That should be enough to send you down the path of purchase in cash.
The mortgage companies owns the asset til paid in full.
Hi,
I'm in the UK but have considered this dilemma over time myself...
the only point that I couldn't see mentioned that I'm not certain applies over in Seattle/ USA are...
- Here in the UK personal financial credit score/ rating worsens being mortgage free. This is because with a mortgage you are demonstrating you are able to maintain/ not default on a regular loan payment.
This may not particularly bother you, but who knows if you'll need a bit of easily accessible cash at some point. Otherwise all other points are personal considerations as to investment risks/ returns, which I'm sure you've already considered.
I personally would still have an inspection of the property so as to highlight any potential large expenditures which may lead you to re-negotiate on price, so as not to have any nasty surprises that the house is about to fall down and so forth. Whilst the bank uses it purely to make sure they don't overlend, I usually have a full structural investigation for my own financial (and physical!) safety net. In saying that my house was built in 1890, so although the walls are about 150 inches thick (lol) I wanted to know about potential pit falls before i invested my money.
paying cash may not be a good idea .. it locks money up in a one way funnel that has no way out except loans with more expenses or selling and yes a reverse mortgage is a loan ..
there is a lot of security in having easy liquidity as well as there is lots of investment opportunity . over long periods of time return on equities have done very well ...
you can't spend the living room during tough times and helocs now require the same qualifications as a regular mortgage ..2008 saw helocs closed and ended all over the place just when money was needed to replace a lost job . having that liquidity in money that can be easily accessed can be a bigger comfort .
the longer you put off investing in more liquid assets the riskier it becomes because you have to count on shorter term frames being good ones . a lot of risk comes out of the equation by giving investments more time .
don't forget when you do a comparison , you have to include any income you no longer will get on the money you invest ... transferring liquidity and income in cash flow to tied up appreciation in the home can be a bad idea , especially if you have no intention of selling ..
we can buy a co-op for 6k less a year then our rent ... however that money will stop producing a minimum of 18k a year in income ..we are retired , cash flow is king so we have no interest in loosing 18k in cash flow and tying up 375k in equity which is a lifestyle changer for us as we would have to eliminate 1k a month from our budget to buy, that is not a good feeling .
the only ones who should pay cash are those with no interest in other opportunity and who have a big reserve already of liquid assets as well as a FULLY FUNDED RETIREMENT .
Last edited by mathjak107; 03-22-2019 at 04:55 AM..
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