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If you could pay all cash for a home right now, would you...
First define who this YOU is. 35 with family just getting started? 65 retiring with an already paid off home?
Very few outside the second group can even consider the option.
Quote:
...but it is always good to keep cash on hand, right?
That's about what *else* you might be doing with that pile.
The money laid out to buy (in whole or in part) should not exceed X% of your net worth.
The money laid out to cover the monthlies (incl P&I or not) should not exceed X% of net income.
Thread those two needles and anyone should be fine.
If you can pay cash, do so. The money you would have spent on the mortgage can be used for improvements. We like to use Same as Cash financing for some home improvements, and that feels great to use other peoples money.
As others have said, an equity line is very cheap money, which you can pay back or not. We have a small amount on our equity line now, and it costs $52. a month, we’ll probably pay it off, but we’re in no urgency.
We paid off the retirement house in 2021. One of us would've carried the mortgage a while, but the 'peace of mind' of not having it was more important to the other.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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That is our current plan for when I retire next spring. Our equity is at about $1.2 million, and we are looking at homes in the $600k range when we downsize. We should still have "leftover cash" but even if we used it all it would make more sense. These days there is no more advantage to paying interest on a small mortgage, it probably won't be enough to be tax deductible. The interest, which is high now, the loan fees, is just throwing away money.
Apply for and get the HELOC so you have those funds available to you in a pinch.
Sit on the HELOC without using it while you build your cash stash back up.
Only use the HELOC for emergencies, unforeseen expenses like replacing a furnace, NOT for a new boat or motorcycle or a cruise.
All that said, I wouldn't strap myself too tightly to brag about paying cash, unless I thought a cash deal was likely to make me successful in a hot market with other buyers making offers.
i just sold a home that I owned outright. I had the cash to buy the new house (slightly bigger, 200K more than I sold the old house for). I got a mortgage for 300K/ 6.8%.
House is brand new so it doesn't need anything but I spent 72K on furniture/window treatments/closet buildouts etc. and still have a few more things to do. MTG will be paid off next year after I figure my capital gains due on the last house. I didn't want to be house poor and the mortgage was for 20% of the house value so needless to say it wasn't hard to qualify for.
Going to own it then dump it in 3 years? Get a loan.
Going to live in it long term (10+ years) then go ahead to dump the cash. Since you'll be "cash poor" after the purchase, you'll be re-loading your bank balance with income, at a more rapid rate, since you won't have the payment every month. (Not paying rent/mort, sure makes cash pile-up quick!) Use this cash for improvements and going out to dinner, often. I'd hold off, on any HELOC, unless you are in dire need.
I don't see interest rates coming back down for a loooooong while. (Think 20+ years, if that.)
First, they gotta quit going up.
Then, they gotta stabilize, and this may take 4-5 years.
Unless, of course, Pfizer puts out another COVID variant that kills lots of people, then all bets are off.....
(Beware, Pfizer stock is down, 28% since Jan. 01, so they gotta do something...) to get that number back up.) Got those shareholders, ya know....
That is the LONGEST take on interest rates that I have ever heard. Making predictions 20 years out….
today you have to meet the same income requirements for a heloc as a mortgage .
as well as it can be tough paying interest on that heloc if you need the money .
especially because if you are going the heloc route in this case it is because you are cash strapped or low on it.
a bunch of down investment years and paying interest in retirement while spending down increases the damage
I don't think that you fully understand the situation and how HELOC loans work. For example, here is what the OP COULD do:
First he buys the house for cash. Then he applies for and obtains a HELOC for, let's say, $250,000 even though he may need only $200,000 to do the work.
Then he begins withdrawing money from the HELOC a little at a time as he needs it. OK, so then an interest payment comes due at the end of the first month. BIG F'ING DEAL. All he will need to pay the interest for that month is a couple hundred dollars. No problem because he withdrew about $35,000 and still has some of that money left in his "remodeling" account that he hasn't spent. So he takes a couple hundred and pays the interest and keeps on doing that over and over until he gets the job done. The key here is to get the HELOC loan approved for MORE money than he actually needs to do the work.
In effect, he is using the money he borrowed to pay the interest on the loan. Yes, you CAN do that. Millions of people have done it. I'm one of them.
Of course, eventually the money has to be paid back, but we already established that the OP has a good income and can handle the payments required to pay back the full loan with interest.
i didn’t see anything about the ops income level or credit score …
regardless of the equity in the home , one still needs to have income other then the money in the bank to qualify for a heloc and a good credit score.
the days of just home equity counting are gone ..they want to see actual income now and not the funds you borrowed coming back and counting as income
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