patrick.net

congrats on buying, but disagree about borrowing money. Let's say the house is 200K and you had 250K saved.

1) Buy the house outright and have 50K left.
2) Borrow 3.875% 15 year mortgage and, pay 50K down and have 200K left? I'm not sure you made the right decision.

Owing is stressful the first 10 years, thereafter that stress becomes security.

SF ace says

congrats on buying, but disagree about borrowing money.

If I'm reading your post right, it looks like your saying to put as small a down payment as you can, in the case of a 250k house 50k, borrow the other 200k then invest the other 200k? Is it just me or isn't that partly how we go into the mess where in now? People putting little or nothing down, borrowing the rest and "investing" the difference. Often there idea of investing was a BMW and a big boat, but even if every Penny was invested in the stock market, we seen what a great idea that can be.

I firmly believe there is two kinds of debt, Bad debt and Worse debt. Neither one is desirable and everyone should strive to minimize bad debt and completely avoid worse debt. Whats bad debt? A mortgage or car loan. Worse debt, credit cards and other high interest loans. People need to get out of this mode of thinking debt is good for them, it's not. Sometimes it's a necessary evil, but you should never consider your deal with the devil as something good.

I would be very interested to see how there figures looked without the massive stimulus package congress pushed though included. I'd wager the numbers wouldn't be so favorable. You can't have a house with a mortgage on it, withdraw a bunch of equity from it, go on a spending spree and claim your doing financially well. The same can be said for the country, you can't borrow billions, throw into the economy and claim things are wonderful again, sooner of later the money has to be paid back, with interest.

I'm not sure how my post ended up here, but this comet was meant for the recession is over topic under housing.

If you paid outright for your house, why are you eating plain pasta? You should have MORE money now. You are no longer paying rent. Other expenses yes, but the big one is interest and principal, which you aren't paying now.

Most repairs are fairly moderate, and you should be able to afford them. Putting away $100-300/month will easily cover all repairs, unless you bought a place requiring significant repairs upfront, in which case you should have factored that in.

I would rather save. Imagine if we had a loan on this house. We could not pay for the repairs we needed if that was the case. We would have been soo screwed.

? If you had a loan on the house you'd still have the money you paid to buy the house, no?

3.5% loans with a ~35% kickback from the gov't is ~almost~ free money, 2.27% to be exact.

You can get 2.7% in 10 year treasuries today, 'course structuring your investments to not get hit with annual income tax can be tricky.

Without spreadsheeting the numbers it is difficult to make a good decision.

Of course, spreadsheets can't predict future events like wage inflation/deflation, energy shocks, gov't policy changes.

If history is any guide we'll be seeing another round of wage inflation later this decade.

But I think history is broken now.

In this Dog Greedy age of every thing has to be gamed, and living takes back seat to unrealistic profit and growth, while demanding what they pay for goods and services go down. So that instant gratification of consumerism, can be a frivolous as going to the sink and pouring a cup of water. It would be unrealistic for you to expect Kudos on your Cash purchase from this Keynesian alternate universe.

Doing what you did, in this era of the Economic Mulligan, where if you get buyers remorse, you cold just walk away from a Financed obligation no worse for the ware, is inexcusable.

Paying Cash, so you can be your own Man, and not have to answer to a Bank, Land Lord, Insurance companies, Loan officers, more complicated Tax codes, and the ability to now retire rent free, (when you choose to do so), is Priceless.

What the price of houses does be damned, you made an excellent choice. The actual values of Houses right now are no more tangible than when they were in Peak bubble prices. (In many areas, excluding Fortress upscale markets) Surely not every Seller, but for the most part, many houses on the Market are at a fair price, if the Economy willing. But it's not, and there will be further ways to drop before this is all over. In most part due to all of the "Economic Stimulus", "Tarp", "HAMP" and a whole litany of others to follow in the near term future, I'm certain.

Take advantage of every penny your price drops, be at the courthouse steps that day petitioning your Tax roll. Ride it down the very last penny. Because the day, will(might) come, when the economy actually will spring back it might be this decade or the next. But for us Long Haulers, when we retire, we will be enjoying paying tax on an assessed value of 99K or less, while others will be paying 225-350K. For comparable houses they will be buying then.

A few hundred bucks a month to the City tax revenuer a month, isn't a bad move at all. Keynesian economics be damned.

I financed through FHA my self, because I was told it was cheap and it was easy, It was neither!

If I had my rathers, I would have waited a little longer and paid cash, or at least put down a bigger DP and wouldn't have $90 a month in MIP, payments, and got the lowest rate available. There's a lot they don't tell you about ONLY putting down the required 3.5%. It's a super huge screw job and a con job.

For a little more than I paid out in Closing costs, not including my initial DP, I could have put down 10 or even 20%, and been a hell of a lot better off. Besides the monthly MIP payment, I was hit with up front up charge of almost 4K for the mortgage insurance.

The loan process was the most undignified experience I ever went though. I'll never buy from a bank again, or use a credit card for that matter.

And that is why SFace said to put down 50K.

First, congratulations for you, jales.

Buying it outright and call it a day is the most clean, straight forward way. It is the best decision if you think you're not familiar with financing or don't know how to play it. Remember whatever fancy word you call it, it basically is debt.

If you had to finance, then... Ok, let's cut the all the cheeses make things simple.

Current 15yr fixed rate is about 3.85%, but you're not gonna this rate, unless you and your situation is almost perfect. So, let's assume you borrowed 200K @ 15yrs/3.95% starting Oct 2010. Your monthly payment is $1475, plus BS fee like processing fee they charge. The interest you're paying for the last 3 monthes in 2010 would be $1967, $7700 or so for whole 2011, $7250 or so for 2012. That amount will be decreased over time as you pays your mortage. Total cumulative interest you're gonna pay is about 65.5K. Is this enough incentive for tax purpose? I can't say since I don't know your situation. Refer Troy's math as a grain of salt if you're in CA. If not, you do your math according to your local tax law. It may or may not beat standard deduction depending one your situation.

Now, it comes to opportunity cost comparison. This shit is hyperthetical thing, like should've, would've stuff, just like other financial BS. So, to make things simple, I am assuming you're somehow able to get about 31% (20K) out of 65.5K back thru next 15 yrs from tax return or whatever. That makes your total interest cost 45.5K. Then the question is, do you think you can get 45.5K profit or more by using your 200K in 15yrs?

If you think you can get significantly more than that, you should've taken financing option.
If you say yes and little more, then ask yourself. Does that "little more" in 15yrs worth the hassle?
If you don't think you can, or you don't want to care, your cash decision was right.

Again, congrats for your purchase. Live happy life in there.

Note: $500 or less if the wife doesn't try and turn it into a redesign effort.

jales .... I think you did the right thing. There is nothing, IMO, like owning your primary home outright. Now that you're a homeowner, try to learn as much as you can about home maintenance. There are a lot of good books, magazines (like This Old House), videos on the web, etc. on home maintenance. If you need any work done by contractors, always get at least 3 estimates and ask for testemonials. If a contractor wants cash before they begin work for any reason, find someone else. Enjoy your home .... you fired your landlord.