Benefits of paying cash for a house

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The Broz
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Benefits of paying cash for a house

Post by The Broz » Tue Feb 11, 2020 5:28 pm

Hello! I have been a reader on and off for a while (and a big fan), but first time poster.

My Wife and I have been renting in a very expensive real estate market on the thought that we would need a massive down payment to avoid being house poor. Along that journey, we came to the conclusion that we wanted to relocate to a new area for a variety of reasons (family, cost of living, amenities, pace of life, etc.). In the area that we are targeting, we would easily be able to afford to pay for a nice house in a nice neighborhood with cash (i.e. 100% down payment). Having said that, we could also take out a small mortgage (e.g. $50k) and get a very nice house or a $100k mortgage and get a very, very nice house. You get the idea.

Question: what are some benefits of buying a house outright, as opposed to getting a tiny mortgage? Obviously, we would not have a mortgage payment, but are there other benefits that are not as obvious? For example - no paying of closing costs to a mortgage company, all cash offers are more attractive to sellers and so on.

(Side note: We have been funding retirement accounts and plan on leaving enough cash after the purchase for a sizable emergency fund.)

Thanks in advance!

dandinsac
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Re: Benefits of paying cash for a house

Post by dandinsac » Tue Feb 11, 2020 9:03 pm

From a seller perspective, I don't think that a buyer paying all cash is necessarily that attractive. Loans are pretty cheap and I'd expect most people have their loan amount approved before making an offer.

Since the transaction costs are so high, buying the right house for the medium to long term is much more important than how you pay or finance it.

texasdiver
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Re: Benefits of paying cash for a house

Post by texasdiver » Tue Feb 11, 2020 9:13 pm

In a tight sellers market, all-cash offers can be preferred because the sale is more guaranteed for the seller. Everything can proceed at your schedule because they buyer isn't messing around with financing or faced with possibly getting denied.

If the question is why would you want to have a mortgage when you don't need one? I guess to maintain liquidity if there is some reason you might need a chunk of cash in the future. But most people are actually trying to get rid of their mortgages.

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yangtui
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Re: Benefits of paying cash for a house

Post by yangtui » Tue Feb 11, 2020 10:31 pm

It is somewhat of a subjective decision. Considering how cheap it is to borrow to buy a house, I would personally only want to put down the minimum amount necessary to avoid PMI. Having said this, you shouldn't buy more house than you need. Depending on the terms of a loan it might make sense to never pay it down.

retire57
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Re: Benefits of paying cash for a house

Post by retire57 » Tue Feb 11, 2020 10:36 pm

Subjective but ... we faced the same decision about 20 years ago. Paid cash and never once regretted it.

Have any of you Bogleheads ever heard anyone say he/she regrets not having a mortgage?

Me neither.

bltn
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Re: Benefits of paying cash for a house

Post by bltn » Tue Feb 11, 2020 11:33 pm

Having bought houses with mortgages and houses with cash, I recommend paying cash. At least once, paying cash got my first offer accepted, which was a bit less than 90% of the listed price.
Pay cash now, and make the house payment back to yourself to replenish your savings.

EHEngineer
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Re: Benefits of paying cash for a house

Post by EHEngineer » Wed Feb 12, 2020 12:46 am

The Broz wrote:
Tue Feb 11, 2020 5:28 pm
Question: what are some benefits of buying a house outright, as opposed to getting a tiny mortgage? Obviously, we would not have a mortgage payment, but are there other benefits that are not as obvious? For example - no paying of closing costs to a mortgage company, all cash offers are more attractive to sellers and so on.
You can close FAST.
You don't have to ask the seller for a financing contingency,
You don't have to ask the seller for a sale and settlement contingency on your prior home. but you're a renter, so this is moot.
You and the seller don't have to worry about the house not "appraising out."
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

The PA Investor
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Re: Benefits of paying cash for a house

Post by The PA Investor » Wed Feb 12, 2020 1:18 am

There's some pros and cons to paying cash for a house. The benefits is that you don't have a mortgage to worry about and can be pretty sweet.

There are a few cons. Paying all cash for a house ties up a lot of money into your home, making a significant amount of your savings illiquid. Next you won't get any tax deductions by paying all cash. You would get a tax deduction on the interest you pay up for up to a 750k mortgage I believe.

I think from what you're telling us having a mortgage of 50-100k is pretty manageable. I definitely agree that a lot of people buy way too much house and become cash poor in the process.

Best of luck.

vipertom1970
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Re: Benefits of paying cash for a house

Post by vipertom1970 » Wed Feb 12, 2020 2:01 am

Paying cash for a house will mentally help you to take more risks in your investments. At least it worked for me the last 25 years.

medic
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Re: Benefits of paying cash for a house

Post by medic » Wed Feb 12, 2020 4:32 am

The PA Investor wrote:
Wed Feb 12, 2020 1:18 am
There are a few cons. Paying all cash for a house ties up a lot of money into your home, making a significant amount of your savings illiquid. Next you won't get any tax deductions by paying all cash. You would get a tax deduction on the interest you pay up for up to a 750k mortgage I believe.
Tax deduction is kind of a useless reason given the standard deductions these days. For the OP, if taking a $100K mortgage would get them a very very nice house, this isn't a HCOL area so the annual interest will be low and the property taxes as well. Don't know the full tax picture, but I'm guessing itemizing probably isn't in the cards for this individual much like most people these days.

Also, think about what this deduction really is. You're paying the bank $1 in interest and you get to reduce your tax liability by roughly $0.20-$0.30 depending on your marginal tax bracket. Would you pay me $1 to save a quarter twelve months later?
If you have to hold a mortgage, the deduction is a nice way to lessen some pain, but it's hardly a reason to keep a mortgage.

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Watty
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Re: Benefits of paying cash for a house

Post by Watty » Wed Feb 12, 2020 4:44 am

Without a mortage you can have a higher deductible on your homeowners insurance.

One disadvantage of making a cash offer is that the seller may take the attitude that since you are rich and flush with cash then you can afford to pay top dollar for the house and also pay all the various closing costs. When buying a house I have been pre-approved for mortgages so they would send a letter saying that I was pre-approved for some high amount that was a lot more than I was looking to spend. When I was ready to actually make an offer my real estate agent has had me get a new version of the letter saying I was pre-approved for just what I would need. We did not want to let the seller know that I could afford to spend more than I was offering.

The seller will also likely tell your new neighbors that you paid cash for the home which can set up some odd dynamics and resentments. When I lived in Oregon there was the saying "Don't Californicate Oregon" and people who moved up from California and paid lots for housing were sort of resented since they were driving up housing prices.
The Broz wrote:
Tue Feb 11, 2020 5:28 pm
Along that journey, we came to the conclusion that we wanted to relocate to a new area for a variety of reasons (family, cost of living, amenities, pace of life, etc.). In the area that we are targeting, we would easily be able to afford to pay for a nice house in a nice neighborhood with cash (i.e. 100% down payment). Having said that, we could also take out a small mortgage (e.g. $50k) and get a very nice house or a $100k mortgage and get a very, very nice house. You get the idea.
I was in a different situation but I moved to much less expensive area when I was ready to buy my first house. That was one of the best decisions that I ever made and it worked out well for me in lots of ways.

One risk is that you will buy too much house.

I know someone that moved from an expensive area of California to an inexpensive area. They sold something like an 800 square foot bungalow in a supper prime area you would recognize and paid cash for a huge custom house on acreage what was based on the large family house one of them had grown up in.

They only had one kid and the land was a lot of work so the house was too much for them so they hated the place even though it was a really nice house. Within a few years they sold that house to buy a smaller more comfortable place.

I also know someone with one kid that ended up with a large house after a divorce. They had an unfinished basement but their laundry was upstairs so they rarely had a reason to go downstairs. They ended up having a water leak that might have been going on for six months before anyone noticed it since no one had gone down in the basement in six months. It was a big mess.

Bigger is not always better. Having unused rooms or more bathrooms than people does not add to the quality of your life.

If you buy a house that is a lot more expensive than houses typically are in that area they can be much more difficult to sell and they may not get good appraisals since there are few comparable sales.

lifeisinmirrors
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Re: Benefits of paying cash for a house

Post by lifeisinmirrors » Wed Feb 12, 2020 5:53 am

It sounds like a mortgage would just get you more house than you need. There will be various things you need to or want to buy for the house, and the lack of a mortgage gives you enough cash flow for that. I think there's more flexibility in not having a mortgage payment, but still having equity to tap if needed.

clammyhands
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Re: Benefits of paying cash for a house

Post by clammyhands » Wed Feb 12, 2020 7:16 am

If you have a long time horizon, I would consider getting the small mortgage and investing the cash in the market. Interest rates are rock bottom right now so I'd have a good feeling about doing better than 3.0-3.5% in the stock market over the long term (after all, this is why I'm investing in the first place).

I guess it's a personal thing, but so many here seem to be really debt adverse, even if it's very cheap debt. The thought of having a mortgage doesn't bother me at all, especially knowing it makes me more liquid and investable. If having a mortgage is uncomfortable to you, then put the cash down for the house. Your happiness and comfort level should be number one priority.

Joylush
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Re: Benefits of paying cash for a house

Post by Joylush » Wed Feb 12, 2020 7:49 am

Once I was able to pay cash for houses that’s what I’ve always done. I’ve done it 35 times. I have no regrets at all.

I understand using leverage (other people’s money) would have allowed me to buy more houses and get a greater return in my money but I still wouldn’t have done things differently. It’s so much easier. I am able to save quite a bit on insurance as well by choosing higher deductibles.

I wouldn’t do it unless I had ample cash reserves. Because they do require continual maintenance and repairs. Early on I established equity lines of credit on a few of them just to have backup funds in place. I never had to use them though.

This came in handy when making cash offers because I showed my cash as my home equity line of credit (not that I used it) so the seller wouldn’t think I had a lot of money and could afford to pay more (as someone mentioned). You typically need to show proof of funds when making a cash offer.

I am starting to sell them now. As a seller cash doesn’t really impress me because in the end I get cash either way.

I am a landlord. Half my portfolio is real estate equity. The other half is half cash and half stock/bonds investments. I tend to be overly cautious.

Leesbro63
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Re: Benefits of paying cash for a house

Post by Leesbro63 » Wed Feb 12, 2020 8:06 am

EHEngineer wrote:
Wed Feb 12, 2020 12:46 am
You and the seller don't have to worry about the house not "appraising out."
I'm a fan of paying cash and having a paid for home...even if the numbers favor borrowing cheaply and investing in stocks for the long term. That being said, having a bank appraisal is a good check and balance that you're not overpaying. And if the appraisal comes in below the agreed upon price, it's a good tool to get the seller to negotiate down.

Nowizard
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Re: Benefits of paying cash for a house

Post by Nowizard » Wed Feb 12, 2020 8:47 am

Personal decision, but my opinion is that unless circumstances say otherwise the benefit of paying cash is primarily psychological. If being debt free is comforting in this low interest environment, that is one approach. Financially, having at least a small loan gives you more to invest and some flexibility with your assets in case of emergencies.

Tim

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Re: Benefits of paying cash for a house

Post by Sandtrap » Wed Feb 12, 2020 9:33 am

When buying/selling: cash talks because of the option for faster close, no financial contingencies, etc. So, sometimes, a better bargaining position.

When owning a house paid for in cash: Psychologically . . . . Peace of mind, it's done, over with, no loan, no mortgage.

Financially: depends on one's unique financial positions. Paying all cash can be an advantage or not.

j :happy
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hudson
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Re: Benefits of paying cash for a house

Post by hudson » Wed Feb 12, 2020 1:08 pm

The Broz,
I hate mortgages; I hate paying back loans. I hate monthly payments.
No mortgage and no loans equals freedom.
I'll likely never buy another house, but if I do, it'll be cash...if possible and appropriate.
It's your choice; I'm sure that you'll do the math and look at all the angles.
Do what fits your situation after you've done your homework.

1130Super
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Re: Benefits of paying cash for a house

Post by 1130Super » Wed Feb 12, 2020 1:15 pm

Closing costs and such a small mortgage would be relatively high percentage wise to the loan.
Typically if you’re doing a cash offer it will be a stronger offer with less hassle and less to go wrong from sellers point of view you might get 5% to 10% off sale price.
With no mortgage or rent one could argue you could handle a more aggressive portfolio
Last edited by 1130Super on Wed Feb 12, 2020 1:56 pm, edited 1 time in total.

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dm200
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Re: Benefits of paying cash for a house

Post by dm200 » Wed Feb 12, 2020 1:25 pm

The Broz wrote:
Tue Feb 11, 2020 5:28 pm
Hello! I have been a reader on and off for a while (and a big fan), but first time poster.
My Wife and I have been renting in a very expensive real estate market on the thought that we would need a massive down payment to avoid being house poor. Along that journey, we came to the conclusion that we wanted to relocate to a new area for a variety of reasons (family, cost of living, amenities, pace of life, etc.). In the area that we are targeting, we would easily be able to afford to pay for a nice house in a nice neighborhood with cash (i.e. 100% down payment). Having said that, we could also take out a small mortgage (e.g. $50k) and get a very nice house or a $100k mortgage and get a very, very nice house. You get the idea.
Question: what are some benefits of buying a house outright, as opposed to getting a tiny mortgage? Obviously, we would not have a mortgage payment, but are there other benefits that are not as obvious? For example - no paying of closing costs to a mortgage company, all cash offers are more attractive to sellers and so on.
(Side note: We have been funding retirement accounts and plan on leaving enough cash after the purchase for a sizable emergency fund.)
Thanks in advance!
I do not see many.

Topic Author
The Broz
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Re: Benefits of paying cash for a house

Post by The Broz » Wed Feb 12, 2020 2:35 pm

Wonderful thoughts here - thank you all so much. I knew I came to the right place!!

Leesbro63
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Re: Benefits of paying cash for a house

Post by Leesbro63 » Wed Feb 12, 2020 3:20 pm

Nowizard wrote:
Wed Feb 12, 2020 8:47 am
Personal decision, but my opinion is that unless circumstances say otherwise the benefit of paying cash is primarily psychological. If being debt free is comforting in this low interest environment, that is one approach. Financially, having at least a small loan gives you more to invest and some flexibility with your assets in case of emergencies.

Tim
Yet the "mere" psychological benefits are "other than that, how was the play Mrs. Lincoln"? They (psychological benefits of owning your home free and clear) are huge.

GoFish
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Re: Benefits of paying cash for a house

Post by GoFish » Wed Feb 12, 2020 3:25 pm

We are 4 weeks from closing on a new house. Our experience that might be relevant to the OP:
  • We made a cash offer because we believed the seller would receive competing offers (we were right)
  • Even though cash offer, we will finance the purchase with 80% / 3.375% / 30 yr mortgage because that is very cheap money and I am comfortable with some debt.
  • We were required to show the seller we could pay cash, though we didn’t hide our plan to finance
  • We did NOT waive the appraisal contingency (our realtor’s words were along the lines of “my clients who can pay cash didn’t get to that position by taking unnecessary financial risks.”
  • We walked away from the first house we had under contract because it did not “appraise out.” Very happy we kept an appraisal contingency on that one.
Different from the OP situation, we presently have a fully paid off home equal in value to the new one. The net proceeds from that sale will be reinvested, where I expect to earn more, net of taxes, than 3.375%.

I wrestled with picking up debt after being completely debt free for a decade or so. But liquidity has become psychologically more important to me. I even financed a new car 3 yrs @ 3%! We live on a generous, but strict, budget in retirement and having a car payment or a house payment puts some downward pressure on other discretionary spending. Works for me, but you gotta do what you’re comfortable with.

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Re: Benefits of paying cash for a house

Post by LittleMaggieMae » Wed Feb 12, 2020 11:38 pm

Since no one's mentioned it... even if you don't have a "mortgage" you may still need to allocate money every month (or paycheck) for property taxes and insurance (and hoa fees if you have an HOA). The PI part of my mortgage is $387.00. There's no escrow account with my mortgage. In addition I have to put $600 into an account for the 2 times a year property tax bill and the once a year insurance cost. It's too disruptive to my monthly spending plan to try to cash flow the property taxes and/or insurance over the course of a couple of months.

Just saying... yeah it's nice to not have a mortgage - but you still will have some monthly bills that may be alot bigger than the "mortgage" part of the mortgage.

And to the OP - in your situation, I'd lean towards paying cash for the house and being done with it. I'd come up with a guesstimate for property taxes and insurance and add in 10% and then divide by 12. I'd bank that amount each month for those house expenses.
Also, The banks aren't always so quick to write low interest loans on a 100K or less mortgage. You may not get the lowest rate and/or you may have larger cost for all the work involved with the mortgage.

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Re: Benefits of paying cash for a house

Post by EddyB » Wed Feb 12, 2020 11:56 pm

retire57 wrote:
Tue Feb 11, 2020 10:36 pm
Subjective but ... we faced the same decision about 20 years ago. Paid cash and never once regretted it.

Have any of you Bogleheads ever heard anyone say he/she regrets not having a mortgage?

Me neither.
Could be, but it’s rare that anyone admits regret, shy of disaster.

I have thus far been well compensated for taking a mortgage at 2.75% in 2012 even though I could have paid cash.

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Re: Benefits of paying cash for a house

Post by EddyB » Wed Feb 12, 2020 11:57 pm

Leesbro63 wrote:
Wed Feb 12, 2020 3:20 pm
Nowizard wrote:
Wed Feb 12, 2020 8:47 am
Personal decision, but my opinion is that unless circumstances say otherwise the benefit of paying cash is primarily psychological. If being debt free is comforting in this low interest environment, that is one approach. Financially, having at least a small loan gives you more to invest and some flexibility with your assets in case of emergencies.

Tim
Yet the "mere" psychological benefits are "other than that, how was the play Mrs. Lincoln"? They (psychological benefits of owning your home free and clear) are huge.
For those who are susceptible to that sort of thing, sure.

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Re: Benefits of paying cash for a house

Post by CoastalWinds » Thu Feb 13, 2020 12:38 am

GoFish wrote:
Wed Feb 12, 2020 3:25 pm
We are 4 weeks from closing on a new house. Our experience that might be relevant to the OP:
  • We made a cash offer because we believed the seller would receive competing offers (we were right)
  • Even though cash offer, we will finance the purchase with 80% / 3.375% / 30 yr mortgage because that is very cheap money and I am comfortable with some debt.
  • We were required to show the seller we could pay cash, though we didn’t hide our plan to finance
  • We did NOT waive the appraisal contingency (our realtor’s words were along the lines of “my clients who can pay cash didn’t get to that position by taking unnecessary financial risks.”
  • We walked away from the first house we had under contract because it did not “appraise out.” Very happy we kept an appraisal contingency on that one.
Curious... how do you structure the PSA offer so that it has the “strength” of an all-cash offer, but it’s not really such?
Is the only difference simply demonstrating the ability to pay cash? Obviously cannot close quicker than the mortgage company and appraiser can work.
Do you include a financing contingency? If your loan doesn't close timely for whatever reason, is your earnest deposit at risk?

bltn
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Re: Benefits of paying cash for a house

Post by bltn » Thu Feb 13, 2020 1:14 am

I ve always thought borrowing money to invest increased the risk of the investment as well as the potential profits.

Buy the house outright, and save for your investments. Especially if you already have a sizable emergency fund.

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Re: Benefits of paying cash for a house

Post by willthrill81 » Thu Feb 13, 2020 1:23 am

retire57 wrote:
Tue Feb 11, 2020 10:36 pm
Have any of you Bogleheads ever heard anyone say he/she regrets not having a mortgage?
I heard one poster here say that he regretted it and wished they had invested the funds in stocks instead. But it sounded a bit like hindsight talking.
Watty wrote:
Wed Feb 12, 2020 4:44 am
Without a mortage you can have a higher deductible on your homeowners insurance.
Yes, but when we looked into this last year with a new insurer, the premiums for deductibles above $1k were not meaningfully different from our view.
Watty wrote:
Wed Feb 12, 2020 4:44 am
One risk is that you will buy too much house.
Bingo. When people buy with debt, they tend to overbuy. That's clearly something that the OP is explicitly considering.
Leesbro63 wrote:
Wed Feb 12, 2020 3:20 pm
Nowizard wrote:
Wed Feb 12, 2020 8:47 am
Personal decision, but my opinion is that unless circumstances say otherwise the benefit of paying cash is primarily psychological. If being debt free is comforting in this low interest environment, that is one approach. Financially, having at least a small loan gives you more to invest and some flexibility with your assets in case of emergencies.

Tim
Yet the "mere" psychological benefits are "other than that, how was the play Mrs. Lincoln"? They (psychological benefits of owning your home free and clear) are huge.
Agreed. People make decisions regarding their AA, which is often far more meaningful than whether someone pays cash for their house or not, mostly on the basis of the psychology involved all the time, and we justly don't deride them when they do.
EddyB wrote:
Wed Feb 12, 2020 11:57 pm
For those who are susceptible to that sort of thing, sure.
Most of us are not investing robots.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

GoFish
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Re: Benefits of paying cash for a house

Post by GoFish » Thu Feb 13, 2020 2:10 am

CoastalWinds wrote:
Thu Feb 13, 2020 12:38 am
Curious... how do you structure the PSA offer so that it has the “strength” of an all-cash offer, but it’s not really such?
Is the only difference simply demonstrating the ability to pay cash? Obviously cannot close quicker than the mortgage company and appraiser can work.
Do you include a financing contingency? If your loan doesn't close timely for whatever reason, is your earnest deposit at risk?
Not sure what PSA means, but to answer your questions:
  • The extra strength was that there was no financing contingency, reducing risk for the seller
  • The seller wasn’t looking for a fast close so we knew we had enough time to secure the mortgage
  • We had been approved for the same amount from the same bank a month earlier on a deal that got killed by a low appraisal
  • Our realtor told us it was customary in the area to include an appraisal contingency with cash offers
  • Demonstrating ability to pay was either a seller contingency, or was part of the standard real estate offer to purchase contract (don’t recall which)
  • If the financing had fallen through we were OK paying cash and proceeding with the purchase.

GoFish
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Re: Benefits of paying cash for a house

Post by GoFish » Thu Feb 13, 2020 2:39 am

I don’t subscribe to the whole “own your home free and clear” thing now that I’ve been there, done that once. What does it let you do that you can’t do if you have a mortgage?

I look at it more along the lines of having a partner to share the (small) risk of an uninsured complete loss. And for that privilege I pay 3.375% interest, increase my liquidity, and keep more invested in a bull market. That works for me.

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Re: Benefits of paying cash for a house

Post by Dottie57 » Thu Feb 13, 2020 2:52 am

GoFish wrote:
Thu Feb 13, 2020 2:39 am
I don’t subscribe to the whole “own your home free and clear” thing now that I’ve been there, done that once. What does it let you do that you can’t do if you have a mortgage?

I look at it more along the lines of having a partner to share the (small) risk of an uninsured complete loss. And for that privilege I pay 3.375% interest, increase my liquidity, and keep more invested in a bull market. That works for me.
“free and clear ownership” lets you keep your house when your job is gone.

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Re: Benefits of paying cash for a house

Post by manatee2005 » Thu Feb 13, 2020 3:36 am

retire57 wrote:
Tue Feb 11, 2020 10:36 pm
Subjective but ... we faced the same decision about 20 years ago. Paid cash and never once regretted it.

Have any of you Bogleheads ever heard anyone say he/she regrets not having a mortgage?

Me neither.
My brother did when I told him instead of paying for his 900k condo in cash he could have gotten 30% return on that money in 2019 and made $270k.

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Re: Benefits of paying cash for a house

Post by fujiters » Thu Feb 13, 2020 4:02 am

manatee2005 wrote:
Thu Feb 13, 2020 3:36 am
retire57 wrote:
Tue Feb 11, 2020 10:36 pm
Subjective but ... we faced the same decision about 20 years ago. Paid cash and never once regretted it.

Have any of you Bogleheads ever heard anyone say he/she regrets not having a mortgage?

Me neither.
My brother did when I told him instead of paying for his 900k condo in cash he could have gotten 30% return on that money in 2019 and made $270k.
+1

While I haven't yet paid off my mortgage, I regret throwing more than the monthly payment value in early on, and also refinancing (and again paying more on the mortgage to end up with a smaller amount to refinance :oops:) to a shorter term when interest rates were at record lows.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

manatee2005
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Re: Benefits of paying cash for a house

Post by manatee2005 » Thu Feb 13, 2020 4:05 am

fujiters wrote:
Thu Feb 13, 2020 4:02 am
manatee2005 wrote:
Thu Feb 13, 2020 3:36 am
retire57 wrote:
Tue Feb 11, 2020 10:36 pm
Subjective but ... we faced the same decision about 20 years ago. Paid cash and never once regretted it.

Have any of you Bogleheads ever heard anyone say he/she regrets not having a mortgage?

Me neither.
My brother did when I told him instead of paying for his 900k condo in cash he could have gotten 30% return on that money in 2019 and made $270k.
+1

While I haven't yet paid off my mortgage, I regret throwing more than the monthly payment value in early on, and also refinancing (and again paying more on the mortgage to end up with a smaller amount to refinance :d'oh:) to a shorter term when interest rates were at record lows.
I also regretted paying off my student loans, but they were 7-8% so at the time it looked like a good return. There's no way I'd pay off a 3% mortgage.

retire57
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Re: Benefits of paying cash for a house

Post by retire57 » Thu Feb 13, 2020 7:17 am

Dottie57 wrote:
Thu Feb 13, 2020 2:52 am
GoFish wrote:
Thu Feb 13, 2020 2:39 am
I don’t subscribe to the whole “own your home free and clear” thing now that I’ve been there, done that once. What does it let you do that you can’t do if you have a mortgage?

I look at it more along the lines of having a partner to share the (small) risk of an uninsured complete loss. And for that privilege I pay 3.375% interest, increase my liquidity, and keep more invested in a bull market. That works for me.
“free and clear ownership” lets you keep your house when your job is gone.
Exactly! We experienced this and I can tell you it made all the difference in the world. That unpleasant period was a rough patch, not a panic. Nothing increases your risk like debt.

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Re: Benefits of paying cash for a house

Post by yangtui » Thu Feb 13, 2020 8:08 am

retire57 wrote:
Thu Feb 13, 2020 7:17 am
Exactly! We experienced this and I can tell you it made all the difference in the world. That unpleasant period was a rough patch, not a panic. Nothing increases your risk like debt.
It really depends on what your overall balance sheet looks like and the terms of the debt. If the terms are right, debt can be a great thing. Even Mark Zuckerberg took out a mortgage to buy his Palo Alto house.

https://www.marketwatch.com/story/how-t ... 2012-07-16

I am always in the market for leverage! If I find terms that look attractive I borrow.

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Re: Benefits of paying cash for a house

Post by goodenyou » Thu Feb 13, 2020 9:02 am

Having cash to finish out your new very very nice home may be an important consideration. All the goodies that go into a new house are expensive (extra very large TVs, furniture, art etc). This stuff adds up quickly. You may have more cash around to purchase this stuff as well and may have accounted for it. Maybe you should count yourself fortune that you don’t have to spend a lot of money on a shoebox and can live well without having to spend a fortune. You can save more money now and in the future maintenance on a larger and more expensive home.
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Re: Benefits of paying cash for a house

Post by Mr. Rumples » Thu Feb 13, 2020 9:12 am

When I sold my home in CO, I sold it for a cash offer even though it was a few thousand less than the other offers (I had 17 showings in less than two days with multiple offers). The buyer provided bank records and I could check on the internet who he was and what businesses he owned (he bought the unit for his daughter); it seemed a lot simpler than waiting for all the ups and downs of waiting for someone to get a mortgage. He had the unit inspected, but waived the appraisal. He wanted to close in two weeks, but I held it up to about three while I made arrangements to move back east.

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Re: Benefits of paying cash for a house

Post by GoFish » Thu Feb 13, 2020 9:33 am

Dottie57 wrote:
Thu Feb 13, 2020 2:52 am
GoFish wrote:
Thu Feb 13, 2020 2:39 am
I don’t subscribe to the whole “own your home free and clear” thing now that I’ve been there, done that once. What does it let you do that you can’t do if you have a mortgage?

I look at it more along the lines of having a partner to share the (small) risk of an uninsured complete loss. And for that privilege I pay 3.375% interest, increase my liquidity, and keep more invested in a bull market. That works for me.
“free and clear ownership” lets you keep your house when your job is gone.
I get that. But the context of the OP, and of my comments, is one where savings are available to pay cash if preferred. Presumably you keep the house either way in the OP scenario.

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Re: Benefits of paying cash for a house

Post by deltaneutral83 » Thu Feb 13, 2020 9:44 am

I think the main takeaway is just to stick to the plan and finish whichever route you take. If you finance, put 20% down on a 30 year note at these interest rates and play through; invest in equities and have an iron stomach during a 40% draw down like 2001 or 2009. After 30 years, get another mortgage if rates are suitable.

If you're not comfortable with that, then just pay it down as quickly as possible and if able all cash. We BH make it out like 30% of the country can do the financing and investing the difference. It's more like 3%. How many of your peers even know how to invest in say, the S&P if they were to finance and invest the difference? More like finance 90% with PMI and invest in a BMW and a kitchen remodel (on payments). I have high earning friends who think they "have a bad company 401k" when the market nosedived in late 2018. As if "another company's 401k" somehow returned the magical 10%. They have no business muttering "finance and invest the rest."

There are plenty of BH who can put 20% down and play through and invest the difference. You just want to know you can play through from the beginning rather than realize you can't midway at the turn when the market pulls back.

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Re: Benefits of paying cash for a house

Post by desihorn » Thu Feb 13, 2020 9:54 am

retire57 wrote:
Tue Feb 11, 2020 10:36 pm
Subjective but ... we faced the same decision about 20 years ago. Paid cash and never once regretted it.

Have any of you Bogleheads ever heard anyone say he/she regrets not having a mortgage?

Me neither.
About 10 years a buddy and I bought homes. Put in about 20-30%. As we both grew in our careers we would discuss about whether to put the extra bonuses extra into our houses or the S&P. He opted for the house and I for the markets. He regrets the decision. Obviously it would have been a different story if the markets had crashed and burned over those years.

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Re: Benefits of paying cash for a house

Post by EddyB » Thu Feb 13, 2020 10:00 am

willthrill81 wrote:
Thu Feb 13, 2020 1:23 am
EddyB wrote:
Wed Feb 12, 2020 11:57 pm
For those who are susceptible to that sort of thing, sure.
Most of us are not investing robots.
Of course, but most of us advocate not selling off in the face of a market decline, too. The initial emotional or psychological response is understandable, but letting it be the sole decision maker can be the wrong choice. Given that the setup for the question implies someone has the resources to be making a choice in the first place, then touting the psychological benefits of having no mortgage in isolation seems misguided.

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Re: Benefits of paying cash for a house

Post by SovereignInvestor » Thu Feb 13, 2020 10:03 am

retire57 wrote:
Tue Feb 11, 2020 10:36 pm

Have any of you Bogleheads ever heard anyone say he/she regrets not having a mortgage?

Me neither.
Biased bevause the downside of paying cash is opportunity cost of potentially 30 year investments (assuming 30Y FRM) returning more than mortgage rate. This is an opportunity cost that isn't tangible.

Not paying a morgage is tangible. A little biased to ask people regret of something that is opprtunity cost and is theoretical, but can be a huge cost.

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Re: Benefits of paying cash for a house

Post by willthrill81 » Thu Feb 13, 2020 10:23 am

EddyB wrote:
Thu Feb 13, 2020 10:00 am
willthrill81 wrote:
Thu Feb 13, 2020 1:23 am
EddyB wrote:
Wed Feb 12, 2020 11:57 pm
For those who are susceptible to that sort of thing, sure.
Most of us are not investing robots.
Of course, but most of us advocate not selling off in the face of a market decline, too. The initial emotional or psychological response is understandable, but letting it be the sole decision maker can be the wrong choice. Given that the setup for the question implies someone has the resources to be making a choice in the first place, then touting the psychological benefits of having no mortgage in isolation seems misguided.
Perhaps, but there are objective benefits to having no mortgage, especially in retirement, when a mortgage increases sequence of returns risk in almost every situation.
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Re: Benefits of paying cash for a house

Post by hudson » Thu Feb 13, 2020 10:56 am

retire57 wrote:
Tue Feb 11, 2020 10:36 pm
Have any of you Bogleheads ever heard anyone say he/she regrets not having a mortgage?
I don't regret having a mortgage; I wouldn't have owned a house without one.
I also don't regret paying it off; I hope to never have another mortgage.
I don't miss those monthly payments.
My retirement plan was to pay off the house and clear all debts before retiring.

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Re: Benefits of paying cash for a house

Post by EddyB » Thu Feb 13, 2020 11:04 am

willthrill81 wrote:
Thu Feb 13, 2020 10:23 am
EddyB wrote:
Thu Feb 13, 2020 10:00 am
willthrill81 wrote:
Thu Feb 13, 2020 1:23 am
EddyB wrote:
Wed Feb 12, 2020 11:57 pm
For those who are susceptible to that sort of thing, sure.
Most of us are not investing robots.
Of course, but most of us advocate not selling off in the face of a market decline, too. The initial emotional or psychological response is understandable, but letting it be the sole decision maker can be the wrong choice. Given that the setup for the question implies someone has the resources to be making a choice in the first place, then touting the psychological benefits of having no mortgage in isolation seems misguided.
Perhaps, but there are objective benefits to having no mortgage, especially in retirement, when a mortgage increases sequence of returns risk in almost every situation.
Reducing sequence-of-returns risk, when relevant (e.g., not to a retiree whose spending is satisfied by drawing a pension and/or social security), isn’t “merely a psychological benefit,” so it clearly isn’t what I was “deriding.” If people want to consider situationally-appropriate financial factors, I’d say that’s wise. Of course the analysis of continuing to carry a mortgage “in retirement” can be separate from the analysis of whether to take a mortgage prior to retirement; one of the great things about a typical mortgage in the US is that it presents very cheap optionality.

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Re: Benefits of paying cash for a house

Post by GAAP » Thu Feb 13, 2020 11:57 am

If it's a seller's market where you buy, then cash will help. If not, then it probably won't make a difference.

I wouldn't buy any more house than you really need -- "nice" is usually sufficient after you've lived there a while. The typical assumption in the US still seems to be that you will eventually downsize and use that money to fund retirement -- but we're on the wrong side of the population boom, and newer generations are dealing with much more debt, a gig economy, etc. I would much rather have a sufficient house in retirement with some budget slack than a very, very nice house while living on peanut butter, ramen, beans, and rice.

You could also get a mortgage for the house that you could have bought with cash, pay it off in a few months, and potentially improve your credit rating -- which may save you money elsewhere.
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Re: Benefits of paying cash for a house

Post by The PA Investor » Thu Feb 13, 2020 8:26 pm

medic wrote:
Wed Feb 12, 2020 4:32 am
The PA Investor wrote:
Wed Feb 12, 2020 1:18 am
There are a few cons. Paying all cash for a house ties up a lot of money into your home, making a significant amount of your savings illiquid. Next you won't get any tax deductions by paying all cash. You would get a tax deduction on the interest you pay up for up to a 750k mortgage I believe.
Tax deduction is kind of a useless reason given the standard deductions these days. For the OP, if taking a $100K mortgage would get them a very very nice house, this isn't a HCOL area so the annual interest will be low and the property taxes as well. Don't know the full tax picture, but I'm guessing itemizing probably isn't in the cards for this individual much like most people these days.

Also, think about what this deduction really is. You're paying the bank $1 in interest and you get to reduce your tax liability by roughly $0.20-$0.30 depending on your marginal tax bracket. Would you pay me $1 to save a quarter twelve months later?
If you have to hold a mortgage, the deduction is a nice way to lessen some pain, but it's hardly a reason to keep a mortgage.
I agree that the tax deduction from the interest will be low considering the standard deduction. I'm not sure of their tax situation but it's an option for him. In addition mortgage rates are currently pretty low so they could invest the difference in stocks/bonds in different accounts or buy rental properties if they're interested. It's really personal so if he wishes to pay cash for a house and not worry about a mortgage that's fine too.

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TechGuy365
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Re: Benefits of paying cash for a house

Post by TechGuy365 » Thu Feb 13, 2020 9:00 pm

There isn’t really a right or wrong answer because it’s completely personal and psychological. It highly depends on if you are debt-averse or not. For people who are debt-averse, having a mortgage or any other type of “good debt” is unimaginable. It weights down on them and can’t sleep at night. For others, paying off a mortgage and tie up a large sum of capital when one can borrow at 3-4% is a crime. They sleep very well at night knowing that their money is working for them in some other way.

It’s a pretty personal decision. Good luck OP!

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