buy a home with cash?

read the newspaper wrote:

Blowing.Rock Master wrote:

If the bank forecloses and can't sell the house for what you owe, they can usually come after you for the difference.

In a word: no.

This may be true in theory, or in some region, but anyone who has read a newspaper in the last year knows that this is not true in practice. Hence "strategic defaulting."

Of course, defaulting hurts your credit rating. I'm not recommending it. But my point is, there's a very real risk to tying up a big chunk of your worth in a single asset, and owning a home outright does so much more than taking out a mortgage.

How many 100% owned homes have been foreclosed?

I hope you're not a lawyer or real estate agent in a recourse state, because if you're telling someone to "strategically default and don't worry about a deficiency" you may find yourself on the wrong end of a lawsuit.

Also, should a deficiency be forgiven the IRS may decide that that is income and tax you for it.

Strategic default isn't a good idea, it's a last resort.

hatchback wrote:

Yes, it is a house that I will be living in. If something immediately bad happens to me financially, then it would be possible to take out a line of credit against the house, right?

Or, sell the house and buy another house with a mortgage.

Or, sell the house and rent like I've been doing.

These don't seem like bad options.

Thank you for all the feedback, folks.

If you lose your income it may be difficult (but not impossible) to take out a line of credit against your home. Banks only like to loan money to people who don't actually need it.

The other options are possibilities but it takes time to sell a house. Even if you get a cash offer right away it will probably take at least 2 weeks to close the deal. More likely it will take at least 2 months or longer.

The best plan is to have enough cash in the bank to cover 3 to 6 months of expenses after paying for the house. Alternatively, take out a small mortgage (10-20% of homes value), then pay it off once you have the emergency fund built up.

Blowing.Rock Master wrote:

If you lose your income it may be difficult (but not impossible) to take out a line of credit against your home. Banks only like to loan money to people who don't actually need it.

The other options are possibilities but it takes time to sell a house. Even if you get a cash offer right away it will probably take at least 2 weeks to close the deal. More likely it will take at least 2 months or longer.

The best plan is to have enough cash in the bank to cover 3 to 6 months of expenses after paying for the house. Alternatively, take out a small mortgage (10-20% of homes value), then pay it off once you have the emergency fund built up.

This is good advice. I will have a year's emergency fund left over. I think that I am going to buy a little bit more expensive house and finance the last 20%. More because that's the house that I want than anything else.

FWIW, I do think that I have a very secure job. My wife and I both work, and we could pay all the bills on one salary, especially given the small house. But I hear ya--bad things happen. But a lot of bad things would have to happen together for me to end up in a bad place, which is about the best you can do, I think.

*small house payment

Sounds good. BTW, congratulations on putting some thought into your actions. We'd all be better off if more people behaved in such a responsible manner.

Good luck!

Blowing.Rock Master wrote:

Sounds good. BTW, congratulations on putting some thought into your actions. We'd all be better off if more people behaved in such a responsible manner.

Good luck!

Indeed. That and vote Democrat!

(Joking!--I have argued politics with you under a different username.)

Hatch,

The idea is to take out the equity line BEFORE you may need it. i.e. right away when your credit is great. What is nice is that they don't cost hardly anything to get.

That is what Ford did and they were able to keep themselves in a very favorable condition in comparison to GM and Chrysler.