…I’m in the position to pay the house we want in full using the cash reserves my wife and I saved up. Do you think I should get a mortgage anyway and put money to work by investing or do you think it’s better to skip the whole mortgage process? Do you think you can relay the question to your readers to get their take?
Adam sent me an email with this question the other day. Through some unusually fortunate events, his family has the luxury of deciding whether they even want a mortgage. He needs our help, and here’s what I think.
Pay in cash.
Happiness has little to do with money, and the former is much more important. High net worth is great, but trying to maximize a number can only turn into a disaster. You can always leverage your mortgage and invest for a potentially higher gain, but that’s a stressful game to play. Like I keep saying, you may not strike it big by paying your mortgage early, but no one is poor being debt free.
Additionally, here are a few more reasons why paying cash is a good idea.
- Cash Offers Rule – In the current market, getting a loan represent a huge unknown for a seller. If I were to buy a house today, the bank can reject my loan because of the selling price, my credit or my loan amount (among many other factors). If I have cash, the seller has the comfort in knowing that the deal has a much higher chance of going through. Therefore, a cash offer with a lower price may even be accepted despite competing against other higher offers. In other words, I can offer less for a house if I can pay for it with 100% cash. Don’t believe me? Talk to a trusted real estate agent. Cash offers are winning in your area too.
- Mortgage Fees – If you are getting a mortgage, expect to pay around $5,000 at closing. If you pay cash, expect to pay half or less, plus you save yourself from all the hassle that your mortgage lender will give you during that 30 days or so.
- Buying a More Modest House – “I buy because I can.” There’s too many reasons we want to buy a bigger home, and having significant cash plus a mortgage is just going to increase the odds that you will buy a unnecessarily big house. Paying cash puts a cap on the home you can afford, which is not bad at all.
It’s worth noting that too many people make the mistake of putting everything they’ve ever saved to buy the house. Remember that you still need to buy furniture and have a sizable chunk of savings left in case of emergencies.
Pay cash if you can, but never go all in.
This is what I think, but what about you? It’s completely okay to disagree (in fact, it’s great if you offer a different perspective). Adam needs your help, so let him know your thoughts.