Paying csh for house

[Anonymous]

Dear Forum:

I recently started to clean up my credit.  I want to buy a house but my credit is terrible. My EQ score is 553. With this kind of score I know I won't get a bank to touch me.  I live in Florida and there is Foreclosures everywhere, so I found this 3/2 that is in gated comm for $110K. 

I want to buy this house cash. This would be my first house. I am currently renting and paying $750.00 plus utilities.    Do you recommend buying this house cash ?

Thank you

[Anonymous]

I don't see any problem with paying cash for a house.  Just be sure to still go through a title company or lawyer, to ensure that you are getting clear title to the house.  I'd also reccomend a home inspection and an appraisal to be sure that there is nothing seriously wrong with the property and that you aren't overpaying.

My biggest question for you, is if you can afford to pay cash for a $100K house, why do you have a credit score in the 500's?

[Anonymous]

well, i just recently can afford to do this. I am in sales and finally i made a decent commission. My credit problem  started when I was a foolish girl, now i am older and going forward trying to fix it.  Anyway, I cleared up all my old bills and just hope in time my score will improve over time.

thanks for the insight.  I guess what I wanted to know about this cash thing is, do i get any type of tax break or incentives?

[ShanetheMortgageMan]

Also, if you have that much to pay for a home, you can probably just put 20% down and finance the rest... low scores do make it more difficult to get qualified, but a huge down payment can make up for a lot of shortcomings.  Unless there is something catastrophic (BK or foreclosure in the last 3 years, or unpaid tax liens, etc.), or you don't have employment or enough income to qualify, I'd say you have better than a 50/50 shot of getting approved when you have 20% down.

Now should you pay cash instead of financing?  Well you'd really need speak with a financial planner to determine that.  By paying cash you lose out on being able to participate in other investments with the money you would've otherwised saved by financing some of the sales price.  Depending on where you are in life, that might or might not be important.  But if it's something you aren't sure about you definitely will want to consult a financial planner before parting with $110k to buy a home.

[MattH]

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@ShanetheMortgageMan wrote:

Also, if you have that much to pay for a home, you can probably just put 20% down and finance the rest... low scores do make it more difficult to get qualified, but a huge down payment can make up for a lot of shortcomings.  Unless there is something catastrophic (BK or foreclosure in the last 3 years, or unpaid tax liens, etc.), or you don't have employment or enough income to qualify, I'd say you have better than a 50/50 shot of getting approved when you have 20% down.

Now should you pay cash instead of financing?  Well you'd really need speak with a financial planner to determine that.  By paying cash you lose out on being able to participate in other investments with the money you would've otherwised saved by financing some of the sales price.  Depending on where you are in life, that might or might not be important.  But if it's something you aren't sure about you definitely will want to consult a financial planner before parting with $110k to buy a home.

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Indeed!

To original poster: in addition to the reasons Shane gives, another reason you should consider borrowing even if you could do an all-cash purchase is financial flexibility.  If you put all your cash into your home and then needed cash for any reason, at that time you might need to take out a home equity loan or something, which would at best entail some time and trouble when you might prefer being able to focus on whatever the emergency is.  If you put something like 20% to 30% down then you'd still have the rest of your cash available if needed.

Especially in the current economy, you are very very very fortunate to have substantial liquidity, and I don't think you want to give up that advantage!

[WannaHouse]

I would also open up a nice secured credit card with about $1000.00 to start buildiing up some good credit. I would also do as Shane suggested about a large downpayment and then finance the rest..also to build up good credit.

[Anonymous]

Hi fixingscore,

First of all, CONGRATULATIONS on being so liquid

during such tough times!!!

Cash is King. More specifically, cash gives you options.

If you pay all cash for the house, you limit your options.

So I agree with the previous posts. Put down 20 - 30%

and finance the rest. And get either a secured credit card

and/or a "credit rebuilder loan" so you can begin rebuilding

your credit.

Personally, I prefer credit unions, so try working with one

that will finance your home purchase and give you secured

credit as well. You'll end up with a new home and 2-3 positive

tradelines that will serve you well over time...

Once again, Congrats on your good fortune. We hope

the home purchase goes well, and you should give serious

consideration to getting secured credit. Once it graduates to

unsecured status, you'll be on your way.....

CanDo

"The right attitude is everything"

[Anonymous]

I have to disagree with the others on this one.  I think paying cash is a great idea if you are able to do it!  Being debt free is the safest investment you can make.  100% of the time that you don't have a mortgage, you are saved from having to pay interest and you don't have that house payment.  It's one of the few ZERO risk investments out there.

As long as you have enought money put aside to cover six months or so of expenses, I'd say buy the house cash in full.  Getting a loan on a house in order to keep cash for other investments isn't necessarily a good idea because any other investment's return would have to be adjusted down to account for risk, inflation, and taxes.  As far as any tax deductions, you still end up paying the bank far more than you would get back through the tax deduction.  On the other hand, the money you will save from not having a mortgage can help you to quickly and rapidly build wealth. 

Make sure you have no other consumer debt or auto loans before you buy a home cash since those debts will carry higher interest rates and keep six months cash in a savings account that is liquid... a money market account is generally a good idea for that.  Take the reamining amount and use towards your home up to 100%. 

(BTW, you really won't have to worry about your credit score if you don't need to use debt! -- I personally NEVER use credit cards or personal loans... living debt free and being patient enough to buy things when you can afford them gives you a huge financial advantage)

Message Edited by Daniel885 on 01-27-2009 07:29 PM

Message Edited by Daniel885 on 01-27-2009 07:35 PM

[Anonymous]

Your points are well taken.

However, in my view a combination of cash and credit is the

best prescription for success. Those who have cash on hand

and establish a track record of managing credit well possess

two skills: 1) They manage their own money well, and 2) They manage

other people's money well. That skillset will take you a lot farther than

simply paying all cash for everything you buy. Financial well-being is

much bigger than any one person's efforts alone. 

In other words, having cash and paying for things all cash proves your

self-reliance and independence. But having cash and managing debt

well proves your interdependence -- which means you have access

to resources greater than your own and you know how to handle them

in a responsible manner. 

I do agree, however, that the ultimate goal is to own everything you buy

free and clear. But the flexibility of managing money other than your own

opens doors that are closed to people who simply pay cash for everything. 

That's the advantage that we try to emphasize in this forum. 

This is a very good discussion. I hope others chime in as well.

CanDo

"The right attitude is everything" 

[WannaHouse]

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@Anonymous wrote:

I have to disagree with the others on this one.  I think paying cash is a great idea if you are able to do it!  Being debt free is the safest investment you can make.  100% of the time that you don't have a mortgage, you are saved from having to pay interest and you don't have that house payment.  It's one of the few ZERO risk investments out there.

As long as you have enought money put aside to cover six months or so of expenses, I'd say buy the house cash in full.  Getting a loan on a house in order to keep cash for other investments isn't necessarily a good idea because any other investment's return would have to be adjusted down to account for risk, inflation, and taxes.  As far as any tax deductions, you still end up paying the bank far more than you would get back through the tax deduction.  On the other hand, the money you will save from not having a mortgage can help you to quickly and rapidly build wealth. 

Make sure you have no other consumer debt or auto loans before you buy a home cash since those debts will carry higher interest rates and keep six months cash in a savings account that is liquid... a money market account is generally a good idea for that.  Take the reamining amount and use towards your home up to 100%. 

(BTW, you really won't have to worry about your credit score if you don't need to use debt! -- I personally NEVER use credit cards or personal loans... living debt free and being patient enough to buy things when you can afford them gives you a huge financial advantage)

Message Edited by Daniel885 on 01-27-2009 07:29 PM

Message Edited by Daniel885 on 01-27-2009 07:35 PM

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This is good in one sense, BUT the OP was specifically asking about repairing his credit as well as paying cash for a house. In order to accomplish both, he needs to work on building his credit as well as buying his house.