3 ms·

Making a cash offer is a good idea (gives seller assurance since there’s no reliance on a mortgage going through) but in today’s climate of low interest rates w

Making a cash offer is a good idea (gives seller assurance since there’s no reliance on a mortgage going through) but in today’s climate of low interest rates would be a poor move financially. Imagine a $500k house. If you paid cash then you save interest payments and you could invest that into other things. But paying $100k and keeping the other $400k to invest will out perform the former strategy considering today’s interest rates of 3%. If rates go way up then home asking prices will fall and a cash purpose begins to make more sense. But they haven’t for nearly 40 years. And there’s more money than ever out there which means there is less demand to borrow it which means interest rates continue to fall as the bid drops since there are so many eager lenders.

ghaff 6y ago
There are also tax benefits to the mortgage route.
- hiram112 6y ago
  A lot of the advantages of deducting mortgage interest and state property taxes are no longer the benefit they once were: * historically low interest rates in the last ten years means the actual amount of interest you're paying each month vs principle is not that high. * Tax Cuts and Jobs Act reduced the amount of property tax deductions that were typically available in HCOL blue states like NY and California. * Standard deduction increase (also part of Tax Cuts and Jobs Act) was increased so high that many would be now be better off not even bothering to itemize deductions, even if they had a mortgage. When I was thinking of buying in about 2017, I did the math, and due to the low interest rates and the lack of any other deductions, neither mortgage interest nor state property taxes would have been high enough to offset the standard deduction. In effect, not a single tax advantage would be available to me with buying a house vs just continuing to rent.
  - ghaff 6y ago
    Fair enough. It certainly depends on how much interest you're paying and what your tax situation looks like.
  - nemo44x 6y ago
    It depends on where you're buying and/or how much you're borrowing. If married you can borrow up to $750k for write-off purposes. Being close to this means with today's interest rates you'll be paying about $20k-$25k or so in interest payments the first 10 years or so. Couple this with property tax and/or income taxes maxed at 10k and now you're around $35k or so. And perhaps you've made some charitable donations and work from home and now you're looking at $40k. So you need to be on the higher end for it beat out the standard deduction. Honestly, the tax cuts really benefit people in this situation. Your effective tax rate is much lower than before and although you only get a piece of the property/income tax write-offs, it might make for lower effective taxes. In terms of buying VS renting, although I bought a home I still think renting makes a whole lot of sense for a lot of people. Buying a home is expensive in terms of furnishing it, customizing it, etc. But also in selling it and related expenses. Imagine your home can be sold for 900k. Around 6% ($54k) of that is going to be taken away from an agent. You'll probably be buying a new home so you have to factor in closing costs for the new mortgage, assume $15k and then moving expenses, etc and you're looking at $75k-$80k. So unless your home has appreciated to cover these costs, you're losing potentially significant money. A renter doesn't have to face this at all and likely pays less in rent than the mortgage and property taxes would be. Buying a home makes sense if you plan on living in it 10 years or more in many cases I believe. By then you'll likely get back anything you've put into it and have built decent equity. The best part of buying is that as time goes on, your monthly payment begins to look like a bargain as rents and home prices continue to rise - once again, about 10 years in.
- qes 6y ago
  Not for most people.
derwiki 6y ago
Declining the financing contingency makes your offer _amlost_ as good as cash. Yes, everyone not in the Bay Area is going to say “that’s crazy why would you do that”—-only way to make a competitive offer. Never going to have an offer accepted if you don’t waive finance contingency.
- nemo44x 6y ago
  Yeah that's my main point. Where I live too is very competitive with most homes getting 4-5 offers after a week or 2 of showing. So of course buyers are encouraged to do everything to make their offer appear as good as possible. Waiving repairs, going far above ask, etc. But waiving the finance contingency is always the best thing you can do and allows you to either pretty much guarantee your offer will be accepted without waiving other things like repairs, etc.

ghaff 6y ago

There are also tax benefits to the mortgage route.

hiram112 6y ago
A lot of the advantages of deducting mortgage interest and state property taxes are no longer the benefit they once were: * historically low interest rates in the last ten years means the actual amount of interest you're paying each month vs principle is not that high. * Tax Cuts and Jobs Act reduced the amount of property tax deductions that were typically available in HCOL blue states like NY and California. * Standard deduction increase (also part of Tax Cuts and Jobs Act) was increased so high that many would be now be better off not even bothering to itemize deductions, even if they had a mortgage. When I was thinking of buying in about 2017, I did the math, and due to the low interest rates and the lack of any other deductions, neither mortgage interest nor state property taxes would have been high enough to offset the standard deduction. In effect, not a single tax advantage would be available to me with buying a house vs just continuing to rent.
- ghaff 6y ago
  Fair enough. It certainly depends on how much interest you're paying and what your tax situation looks like.
- nemo44x 6y ago
  It depends on where you're buying and/or how much you're borrowing. If married you can borrow up to $750k for write-off purposes. Being close to this means with today's interest rates you'll be paying about $20k-$25k or so in interest payments the first 10 years or so. Couple this with property tax and/or income taxes maxed at 10k and now you're around $35k or so. And perhaps you've made some charitable donations and work from home and now you're looking at $40k. So you need to be on the higher end for it beat out the standard deduction. Honestly, the tax cuts really benefit people in this situation. Your effective tax rate is much lower than before and although you only get a piece of the property/income tax write-offs, it might make for lower effective taxes. In terms of buying VS renting, although I bought a home I still think renting makes a whole lot of sense for a lot of people. Buying a home is expensive in terms of furnishing it, customizing it, etc. But also in selling it and related expenses. Imagine your home can be sold for 900k. Around 6% ($54k) of that is going to be taken away from an agent. You'll probably be buying a new home so you have to factor in closing costs for the new mortgage, assume $15k and then moving expenses, etc and you're looking at $75k-$80k. So unless your home has appreciated to cover these costs, you're losing potentially significant money. A renter doesn't have to face this at all and likely pays less in rent than the mortgage and property taxes would be. Buying a home makes sense if you plan on living in it 10 years or more in many cases I believe. By then you'll likely get back anything you've put into it and have built decent equity. The best part of buying is that as time goes on, your monthly payment begins to look like a bargain as rents and home prices continue to rise - once again, about 10 years in.
qes 6y ago
Not for most people.

derwiki 6y ago

Declining the financing contingency makes your offer _amlost_ as good as cash. Yes, everyone not in the Bay Area is going to say “that’s crazy why would you do that”—-only way to make a competitive offer. Never going to have an offer accepted if you don’t waive finance contingency.

nemo44x 6y ago
Yeah that's my main point. Where I live too is very competitive with most homes getting 4-5 offers after a week or 2 of showing. So of course buyers are encouraged to do everything to make their offer appear as good as possible. Waiving repairs, going far above ask, etc. But waiving the finance contingency is always the best thing you can do and allows you to either pretty much guarantee your offer will be accepted without waiving other things like repairs, etc.