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The Big Move: ‘Home prices where I live are close to $600,000.’ Is it a smart move to buy a house with all-cash — or better to take out a mortgage?

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Dear Big Move,

I’ve recently been thinking about purchasing my first home at 35. 

I have a nest egg of about $1.8 million that I’ve accrued over the past 14 years. This money is completely invested in a select number of stocks that have done extremely well during this time. 

About $400,000 is in profits through investments, post-tax, and $120,000 in savings. I’ve also kept my vehicles low-cost and have lived semi-transiently over the past six years, while not paying rent. My total income between dividends and employment is around $175,000.

I’m now in a serious relationship with my significant other who has several children. We would need at least four bedrooms and two baths as our current single bath setup is too tight. 

Being that mortgage rates are so high, and average home prices where I live are close to $600,000, is it a smart move to buy a house with all-cash, or better to take out a mortgage?

Nomadic No More

The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.

Dear Nomadic No More,

Going in with all-cash may not be the best idea at this point, given your uncertainty about where the market is going. I’d say go in for a 15-year fixed-rate mortgage with a bigger down payment.

“It’s always better if you can use someone else’s money to buy property because this allows you to use your cash for other investments,” Clint Coons, founder of Anderson Business Advisors, told MarketWatch.

Besides, you can always refinance your mortgage when rates go lower, he added.

All-cash will tie up all your liquid assets with the house. If an emergency occurs, you’re stuck.

Plus, “if you buy a house for all-cash and the value drops then you just lost investing power because your cash was tied up in an asset that has gone down in value,” Coons added.  

Sure, going in all-cash leaves you debt-free, and maybe give you a leg up in some hot housing markets.

“‘Houses are remaining on the market for slightly longer, and price growth is decelerating. Realtors are seeing fewer bidding wars.’”

But the market is turning.

Houses are remaining on the market for slightly longer, and price growth is decelerating. Realtors are seeing fewer bidding wars. Houses are still getting multiple bids, but not in droves. So you have some time to shop.

You may even be able to ask sellers for more incentives. Some buyers are waiting for prices to drop in some pandemic-favorite destinations.

A part-mortgage/part-cash purchase will lower your monthly bill enough such that it’s not a massive burden. You will also save on interest with a 15-year mortgage. At the same time, you will be able to keep a substantial stash in savings, should that emergency mentioned prior happen. 

I know 15 years is a long period of time — a lot could change, financially, mentally, physically. But keeping some buffer cash on the side is a good idea.

Ultimately, the “fear of losing a job should not drive the decision,” Coons stressed, “because even if you lose your job you still have the cash to make the mortgage or pay off the house.”

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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