We are looking at potentially moving in a year or so, and I'd like to upgrade if we do. Our current home is almost paid off. If we move and upgrade, it'll mean a mortgage of about $120k that I'm not real interested in, especially since our rate will double. We have about $100k in a HYSA as our rainy day fund, but it's only getting about 3.5%. With rates around 6%-6.5%, would it be better to just take $50k-$60k out of savings and pay down a huge chunk early?
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Home buying advice needed
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Last: 11 hrs ago by 5Amp
Where is the area you are looking to buy? Home prices have been pretty insane lately, I think they might start lowering when you start looking to buy.
Personally, debt free is right for me but it might not be right for everyone.
Personally, debt free is right for me but it might not be right for everyone.
My youngest son is on the verge of buying a home after getting married and is thinking about pulling a bunch of cash out of his investments to put 50% or 60% down. I'm advising him to go easy, no more than 20%, and keep his cash in reserve because there are many things that come at you in life beyond what you expect, and having liquidity to deal with those is important and provides peace of mind. Just because you only put 20% in now doesn't mean you can't do 50% later. You still have the option. But once you sink that cash into the house, it can be hard to get back out.
My oldest son is getting married soon. He and his wife will sell their homes and buy a new one. He's got a few years under his belt and is planning to minimize the amount he puts in the house and build up his cash reserves. That's a bit of experience he's learned along the way.
I'm retiring soon. We'll sell our house and move to be near the kids. We've got about 75% equity in our house now but won't put much cash into the new house. I can use that cash over the coming years in ways to maximize our total wealth instead of sinking into a house. One thing I've learned over the decades is even if you pay a house off, you still have to pay property taxes and insurance. So it's really about being able to service your note no matter what comes at you, but once you meet that obligation, there are many better uses of cash.
Don't be house rich and cash poor.
My oldest son is getting married soon. He and his wife will sell their homes and buy a new one. He's got a few years under his belt and is planning to minimize the amount he puts in the house and build up his cash reserves. That's a bit of experience he's learned along the way.
I'm retiring soon. We'll sell our house and move to be near the kids. We've got about 75% equity in our house now but won't put much cash into the new house. I can use that cash over the coming years in ways to maximize our total wealth instead of sinking into a house. One thing I've learned over the decades is even if you pay a house off, you still have to pay property taxes and insurance. So it's really about being able to service your note no matter what comes at you, but once you meet that obligation, there are many better uses of cash.
Don't be house rich and cash poor.
There's a difference in carrying a mortgage when you're working and have income vs carrying that same mortgage when you're retired and your income is SS and RMD's. And the taxes are the same whether you have a mortgage or not. Downsizing to retire isn't a thing anymore since smaller houses typically cost more than what equity one gets when selling an older home.
No one loves a paid off primary home more than me. It is just a great feeling. So pay it down if you want, but if you are moving in a year you need cash. What if you find the dream home before the current one sells? You need cash. What if the current one needs repairs to sell. With your situation liquidity is helpful. Once you move, crush the debt. I mean before renovations and vacations. It feels great, and as Dave Ramsey says "if you don't like a debt free home, you can borrow against it." Hint: you will like it.
Years ago, my wife and I sold a paid off home to buy a county home. Problem was that it took every dollar of savings we had (not counting 529 and 401k) to do it with no loan. At the same time, we had a new baby and needed a larger van. We bought a used van on credit to pay cash for the house. I asked her which one do you want to own and which one do you want a note. She said own the house in about a second. We paid the used car off in 12 months then saved to pay cash for the next one.
This is anecdotal and not advice. I'm retired but over many years originated thousands of mortgages. The vast majority of rich people I dealt with had 2 questions.
1. What's the lowest down payment?
2. What's the longest amortization?
The bank's money was generally cheaper than using their own.
1. What's the lowest down payment?
2. What's the longest amortization?
The bank's money was generally cheaper than using their own.
Looks like a buyer's market, I would offer at least 25% below asking price
We had a similar situation when we moved earlier this year. Our equity covered price of a new house aside from about $150k. I didn't want a new mortgage so we liquidated some taxable assets to just pay it off. However, we are also mostly retired with little income.
Other things that will happen when you do this you may not have thought ahead to yet, but they will happen and you will need cash or credit for it:
- wife will want some new furniture; not everything you have now will work in new house.
- repairs and improvements in next house that will either get negotiated to your responsibility or will pop up right after you move in.
Also, mortgage interest rates are 6.84% nationally and likely only going up over next year. This could help prices to come down...maybe.
Other things that will happen when you do this you may not have thought ahead to yet, but they will happen and you will need cash or credit for it:
- wife will want some new furniture; not everything you have now will work in new house.
- repairs and improvements in next house that will either get negotiated to your responsibility or will pop up right after you move in.
Also, mortgage interest rates are 6.84% nationally and likely only going up over next year. This could help prices to come down...maybe.
jja79 said:
This is anecdotal and not advice. I'm retired but over many years originated thousands of mortgages. The vast majority of rich people I dealt with had 2 questions.
1. What's the lowest down payment?
2. What's the longest amortization?
The bank's money was generally cheaper than using their own.
Not that different from a lot of successful private equity companies that use leverage to maximize returns on their equity. Of course, there are those who over-do it on debt and go under when times get tough and they can't service their note. There's a sweet spot somewhere between no debt and excessive debt. It varies depending on your circumstances.
As I said that's anecdotal and not advice. About 20 years ago when rates were about like now I had an Aggie with a 7 figure salary and multiples of the price of the house liquid say he wasn't willing to take money he could make 10%, 15% or more on to buy a house the bank would finance for 6% or 7%. I suspect there are people thinking exactly this in the market we've been in.
5Amp said:
Looks like a buyer's market, I would offer at least 25% below asking price
Good luck with that strategy. Home prices, in some areas, are coming down but people are not giving their homes away.
Hondo1 said:
Where is the area you are looking to buy? Home prices have been pretty insane lately, I think they might start lowering when you start looking to buy.
Personally, debt free is right for me but it might not be right for everyone.
Forney. It would put us in a nice sweet spot of value, schools (depending on where you buy there), and location between my wife's parents and her brother.
GrimesCoAg95 said:
No one loves a paid off primary home more than me. It is just a great feeling. So pay it down if you want, but if you are moving in a year you need cash. What if you find the dream home before the current one sells? You need cash. What if the current one needs repairs to sell. With your situation liquidity is helpful. Once you move, crush the debt. I mean before renovations and vacations. It feels great, and as Dave Ramsey says "if you don't like a debt free home, you can borrow against it." Hint: you will like it.
I wouldn't be paying down the house we're in, I'd be putting everything toward where we move to lower our next mortgage. Our rate here is sub 3%, so it's free money at this point. However, I think any mortgage would be 6%+ when we're looking. I'd rather keep taking gains between HYSA and mortgage until I need to sell.
Real question is whether I should keep the savings level we have or spend it to bring the future mortgage amount down since the financing cost will be so much more than the return.
We have plenty of liquid assets and savings. About $400k in 401k/IRA, $430k in brokerage, $40k in HSA, and another $100k in a HYSA. We also keep a small low interest savings account for property taxes and insurance. This would come out of the HYSA and bring down our cash rainy day fund, but if we needed a huge amount of money we could liquidate brokerage or use the HSA for anything medical. All told, or current house is about 18% of our net worth. If we put a big chunk of cash toward it, it would end up around 23%.
ETA we're in our late 30's. Right now my wife stays at home with the kids. She may go back to work now that they're both in school, but there is a nice sense of security knowing I can pay the house off tomorrow and not notice it if anything happened to my job.
ETA we're in our late 30's. Right now my wife stays at home with the kids. She may go back to work now that they're both in school, but there is a nice sense of security knowing I can pay the house off tomorrow and not notice it if anything happened to my job.
Wife is ok with the furniture we have. We've been styled in American Hand Me Down for 15 years, and it works with everything.
That said, I'm not happy with a lot of our bedroom furniture, but I'd build a new set before I buy one. I have plans for a new bed and some dressers eventually.
That said, I'm not happy with a lot of our bedroom furniture, but I'd build a new set before I buy one. I have plans for a new bed and some dressers eventually.
Now, I understand. Yes, pay down the mortgage.
You will have people saying that you should leverage it, but there is something about a paid off home. Also if the mortgage is 7%, you are locking in that return. If you are saying you can make 10%, you just broke even. You have to pay taxes on the 10% which starts to look a whole lot like 7.x% Pay off the house, and you free up cashflow. Once again, if you don't like owning the house, just borrow against it again.
The tax changes around itemization really made this argument stronger for paying it off.
You will have people saying that you should leverage it, but there is something about a paid off home. Also if the mortgage is 7%, you are locking in that return. If you are saying you can make 10%, you just broke even. You have to pay taxes on the 10% which starts to look a whole lot like 7.x% Pay off the house, and you free up cashflow. Once again, if you don't like owning the house, just borrow against it again.
The tax changes around itemization really made this argument stronger for paying it off.
stallion6 said:5Amp said:
Looks like a buyer's market, I would offer at least 25% below asking price
Good luck with that strategy. Home prices, in some areas, are coming down but people are not giving their homes away.
Interest rates are expected to rise next month, if you have cash, even better for the buyer to get a really good deal.i would start my offer at 25% less market value as it could even get worst.
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