Real estate: we don't need no stinkin' mortgage; what now?

Hey y’all,

I’ve been gone awhile but I know where to come for the good answers.

Advice requested: mr. emilyforce and I have come, and will be coming, into a few small inheritances this year, adding up to a fair amount, and suddenly have more assets than wild-assed guesses about what to do with 'em. We’ll have liquidatable assets enough to buy a house in cash, if we want to, in a month or two.

We’re thinking seriously about doing so. Our lives are very much in flux - he may need to go abroad to do PhD research for 6-10 months sometime in the next 2 years. Or not. I might be able to join him for part of that time, or not. He/we may be funded to do this by various gov’t agencies… or, of couse, not. I have a job I’m OK with but don’t love, but I’m the one bringin’ home the bacon (and the bennies) and have been for almost a decade. We do know we’re sick of paying rent.

So my questions are, how do you go house-shopping without all the bank-sanctioned “Loan pre-approved! Excellent credit!” stuff? How do we talk to real estate agents about all this? Are you supposed to stick to just one buying agent, or is it OK to talk to several? How kosher is it to ask for showings if you’re not sure you know what you want or when you could buy it? If we see a place we LOVE on an online MLS listing, can we just ask to see it, or do we have to go through all the finance stuff etc.?

I don’t want to piss off (or even annoy) any realtors if we can help it, since we might become neighbors. I’ve found many-many-many “How to buy a house!!” advice sites, but none that address our situation.

Help please!

IMO, you may want to speak with a reputable financial advisor. Only because most people don’t buy houses with cash, even if they have the cash at hand. The logic being, that you can usually earn more interest with your cash, then you will be paying in interest on a loan. Leverage can be a great financial tool for situations such as yours. Of course you can still buy a house with cash, but you may want to consider other options that may benefit you in the long term.

Granted - but I’m pretty sure we can’t earn more interest with our cash that we would pay on a loan PLUS rent. (My personal, ever-evolving Excel spreadsheet examines: “Could we earn more than we’d pay on a loan plus rent plus taxes plus utilities, minus my salary and benefits, as adjusted for local cost of living?”)

That part isn’t so much what I’m asking advice for (though I thank you all the same, PA). I guess you could say I need to know about real estate agent ettiquette.

I don’t know anything about your life other than what you posted in the OP, but it sounds as if you’re both in your thirties, career-wise you’re both professional/scientist-types, there might be some international travel in your near-future, but you expect (want?) to stay in Austin. Kids?

In my opinion, as long as you’re planning on living there for a number of years, I wouldn’t worry too much about what you might potentially lose financially and do what will make you most comfortable, the happiest: buy the home.

It’s a nice thing to own your home outright, a feeling of security not easily achieved at our age. (And you will still “have” the money - it’ll just be tied up in equity for your home.)

Buying outright with no mortgage will make for a smoother transaction: you won’t have as many hoops to jump through, you won’t have to deal with banks. Tell your agent (I’m assuming that you’re getting one) that you’re paying in cash and they’ll take care of the rest. If they need proof of some sort, get a current bank statement. Unless you’re the sort that likes coordinating financial transactions by transferring assets across multiple accounts (you mentioned multiple inheritences, right?) I wouldn’t start the process (other than casual house-hunting with hubby during the weekends) until you have the money in the bank.

Be sure to bring the correct checkbook to closing!

My brother has a rather large inheritance and we’re going through the same process. Like I said: it’s rather nice. :wink:

Eh, my bad! What I left out was that though we now live in Austin, we’re thinkin’ on property in New England, where DH is from and where most of our friends now are. We DON’T want or expect to live in TX for much longer. And the key thing is: folks like us really don’t know what we’ll be doing a year from now, or five years from now, anyway. DH hopes to get his PhD, given favorable research conditions in the mideast, in a year or two.

But that doesn’t really touch on the property-acquiring thing. Do realtors/real estate agents (I did find out those are two different things) care about cash vs. loans? All the online tutorials make it sound like realtors won’t take you seriously if you don’t have bank pre-approval.

The tutorials assume that you need approval (not many people taking an online tutorial on home buying is sitting on the cash needed to buy the house outright).

Trust me: money talks. It talks a lot louder, clearer, and more distinctly than “The bank’s gonna approve us any day now!” Compared to credit, cash sings. :wink:

As far as buying a house and keeping it… if you don’t know where you’re going to stay, and you don’t know if you can even keep it five years… I would hesitate before buying the house. There’s nothing to promise that you’ll get your money back, if there are problems you are responsible, and if you rent it out, you won’t make enough from the renter to make it worth your while (plus, NE rental laws are a pain from a landlords point of view).

I bought a condo after an inheritance a couple of years ago, though my inheritance only covered a 20% downpayment. Well, actually by the time I decided on the condo I had enough left for 20% down, but that’s another thread.

Your situation is in a way even riskier than mine re buyung property. The market can go up or down for us both, but I have some long term tax advantages because of the tax break on my interest rate payments,

Then again, you wouldn’t have a huge honkin debt, but a mortgage is supposed to be “good debt” that improves your credit…

Ooh, I have a headache. Really, talk to a finacial advisor before making a decision.

Ultimately, I decided to buy because otherwise I would piddle the money away within a few ears with nothing to show for it. It was probably the right decision for me. But you might decide you can put enough into a house downpayment to guarantee you can get a good rate, and put the rest of the money into some kind of investment, retirement or college fund.

Realtors LOVE people who can pay cash for a property. We bought a couple of homes with cash (cheap fixer uppers) and it made the whole transaction a hundred times easier than getting a mortgage (which we’ve done a couple of times, too). Realtors are generally very happy to show you any home you want to see; you don’t need to provide proof that you can afford said home. The whole thing isn’t as complicated as you seem to think. You don’t have to work with only one realtor, although when you find one you like it makes it easier to stick with him/her. If you don’t know any, you can ask for recommendations or just call the listing realtor of a house you’re interested in. If you like that person, they can show you other properties, if not, find someone else. There are lots of realtors everywhere. They want your business.

Also, you can very easily get a loan if you have a large chunk of cash in the bank. Banks love that. (Hell, everyone wants to deal with people with large chuncks of cash.) You might want to check into the amount of interest you can earn by investing the money vs the amount you would pay in interest on a mortgage (also factor in the tax break on mortgage payments).

Different country and all, but I stumped several realtors because I did not need their 0%-down, high interest, long term loans (I’d already calculated what price could I pay, assuming 20% down which is what most banks ask for and taking legal expenses into account).

I finished college in '94. In these 12 years I’ve lived in… 13 places. By Mom’s WAG, I should be stopping about now (her parents have been in their 10th house for over 40 years; she’s been in ther 12th for 26). Given the way my career has gone, it’s quite possible that I’ll still take jobs that take me out of the country or just to other ends of this one. But the main reason I bought is that I’d started a “homebuyer’s account” years ago during a period when I thought I’d stabilized and it was about running out of time, at which point I would have had to pay all the taxes I saved because of it.

I bought a flat

  1. that I can afford,
  2. that should be easy to get rented out if I’m going to be away for over a year,
  3. and to sell if I’m moving-moving.
    Apart of things like liking it, of course.

Buying a house is an option. But you also have the option of not buying one for now and putting the money into bonds. Keep both in sight and don’t buy a house unless it’s one you’d like to live in. Best of luck!

When you walk into a realator and say “we are going to pay cash” you won’t have ANY problem getting them to take you seriously. They may take you too seriously. You may have to convince them you don’t want a mortgage on top of your cash on hand. That’s won’t be a problem - you walk into closing with a huge cashiers check.

As to whether this is wise, my house is paid off. I did a lot of the math on it, and it wasn’t worth having the mortgage. I could get a better return in the stock market - but with much more risk (and we do have money in the stock market). By the time you pay taxes on investment gains, you may have wiped out your tax savings on the mortgage. And the extra cash flow each month is really nice.

However, given your location stablity issues, generally you’ll want to be in a house three - five years to make sure that its worthwhile to go through the closing. Not having a loan will take out a lot of the closing costs, but if you resell, you’ll still have realator fees. Make sure you’ll be in the house for several years - or alternatively - have some sort of plan for its use (perhaps friends who would be willing to housesit and cover the taxes if you move out of the country - that sort of thing). Property taxes can be a big deal on a house you aren’t living in and getting use out of.

You have some serious bargaining power in a weak market. Bargain hard.

Hey baby, I got the cash right here, no need for some approval process, we just sign the check. Of course, you gotta drop the price 20%

You know conventional wisdom is to leverage up on the mortgage. Use your spreadsheet and your brain, you may easily get more house by purchasing than by sticking the money in the bank and using the interest to pay the mortgage. It’s not leveraged, nor the “smart” play in a gangbuster market. However, we are pretty much guaranteed to have rising interest rates and rising defaults given the current market. Having lived through several housing crashes, good chance this is going to take a minimum 2 years before working through the system.

In other words, you don’t necessarily have to rush to buy a place now. suspect you’re going to have some pretty desperate sellers in the next 12 to 24 months

Ditto on all of this. The housing market is out of control and a correction is imminent. Hang on for a little while until you can actually pay what the house is worth. These housing programs I watch on TV are ridiculous. They’re getting $750K for the same crackerbox my dad paid $17.5K for in 1960. It ain’t right. Wait it out if at all possible.

First of all, if you have cash, it makes you an incredibly strong buyer. What sellers don’t want is to go to contract, wait a month or two for loan approval with the house off the market, and then wind up with nothing when a loan isn’t approved.

That being said, I would strongly recommend you speak with a tax advisor before deciding to purchase with all cash and no mortgage. With low mortgage interest rates and the tax deductability of home mortgage interest, it is quite likely that you will do better by financing your house and investing the cash you would have paid. I have represented some people with unimaginably large amounts of money, and they have usually taken home mortgages of up to the deductability limit (sometimes with private family financing) to get the tax advantages.

Most sales contracts provide for a mortgage contingency that says, essentially, that if the buyer applies for a mortgage and is rejected, the buyer can back out of the contract with return of the downpayment. An “all cash” offer typically means that there is no mortgage contingency. Often, in the contracts I negotiate after an “all cash” offer is accepted, I will include a clause that says that the buyer can get a mortgage, but the contract is not contingent on the buyer obtaining a mortgage, and sellers rarely object to that.

I should mention that these are general principles, I am not your lawyer, and I am not licensed in the jurisdictions you are interested in, which may have different real estate laws and customs. Please consult legal, tax and financial professionals experienced in the areas you are looking. Good luck.

Absolutely - one reason we paid off our mortgage is that our income hit the deduction cap - we couldn’t deduct all of our mortgage interest. Between that and the wonders of AMT, doing anything around our house because of an income tax deduction is not a wise move. But we are in the “not so sweet spot” of income, we don’t make enough to be able to play shelter games, we make enough that the tax law isn’t interested in giving us a break. So for us, we were down to comparing guarenteed returns on our mortgage (which was adjustable) and investments. So you should definately consult a CPA - because finanical advice definately isn’t one size fits all.

Funny, I was talking about the same thing earlier today.

I said the smart move was to sell up, trash my junk, store the minimum and rent in the target area - while I got a feel for the place - and do a vulture job.

With cash you don’t need to worry about what we (in the UK) call estate agents.

Credit ratings are only for people without money, show cash (or even talk it) and the world is a different place.

I would not buy unless you want to keep the place, as others have pointed out, the market is potentially fragile.

If you do buy, which will be very easy, then keep a cash slush fund to finance problems.

From what you have said, I would be inclined to move into the area, check things out and if you do buy, get a knock down bargain with rental potential.

While it makes you a strong player, it only goes so far. If I sold my house, I wouldn’t give up $10,000 in selling price to take you over a buyer with solid credit and a pre-approval. Of course, things get more complicated than just getting a mortgage, and that can play in, I’d take the $10k off to avoid waiting for someone else’s house to close.

I’m not a big fan of keeping a mortgage you don’t need. If your house was paid off, would you take out a mortgage just to invest the money? That’s a big risk, you’ll have to invest in something that’s not secure to beat the loan’s rate. If your investment tanks, you’re still stuck with the loan, and don’t have money to pay it off.

Eh, my bad! What I left out was that though we now live in Austin, we’re thinkin’ on property in New England

This is a good time to buy real estate in New England, as the market is depressed and prices are down. It’s a buyer’s market, as discussed in this article from yesterday’s Boston Globe:

[QUOTE=Sonia Montdore]

When houses are 100% overpriced, and a seller drops the price by 8% and still can’t sell it, and the inventory is at a 15 year high, that’s not a “buyer’s market”.

It’s called “catching a falling knife”.

I’d be VERY VERY careful about buying a hosue right now. Even if you can afford something outright, even if you keep it 30 years. . .if you overpay for it, it’s still a bad investment.

Regarding the interest tax deduction: I never understood why this should factor in to things. Can somebody help explain this to me:

If I pay $1000 in interest every month, it’s great that I get to deduct it and maybe see $300 or so back on my taxes. However, I’m still paying $1000 of interest every month. It’s better not to be paying any interest, even if I don’t get a tax deduction, right?

The consideration should be how much money will my money earn in the stock market vs how much interest I’m paying to the bank (minus the deduction percentage).

Folks at my office were talking about mortgages the other day and everyone seemed determined that having a mortgage was a good thing “because of the interest deduction”. I think they misunderstand. It’s great to have lower taxes, but not if it means paying out thousands in interest above the tax savings!

It’s just one consideration, so if all things are equal then go with the mortgage, because the tax savings decreases the pain of paying the interest slightly.

One other question: With a mortgage, the interest is payed up front. With saving in the stock market, most of the compounding interest gains happen in the back end. Does this factor into things?

You’re right, debaser.

The deduction is a deduction based on a loss you suffered. Paying interest, to me, is just like paying rent to live in your house. It’s only the utility of your money in other pursuits that keeps you from paying it all off as soon as you can.

If there were no other places to put your money, not paying the mortgage off faster because you “miss out” on the deduction would be stupid.

When it comes to figuring out what to do with money, I consider the interest after deduction to be my “real” rate and the interest pre-deduction to be a “fake” rate.