Need Some Advice

[firehawkocean]

Hello my friends,

I have a quandary. I have gotten some advice on this matter a bit about 2 months ago from this forum, but figured I would lay all my cards on the table.

I am 30, wife is 30, with two young kids. We own one home outright that we are renting out back in CA. Its value is about 366875.

We now live in TX and are looking to buy a home.

I have a stipend that amounts in 15647.13 a month NET.

We own both vehicles outright.

We have zero debt.

We have 296342 in liquid cash in bank accounts.

We have 370985 in vanguard accounts that are fairly conservative (muni bonds and total stock market index).

I do not qualify for a write off for a mortgage on my federal income tax return.

We are trying to decide whether to take a loan out for a home purchase of <350 with 20 percent down. Or, would it be wise to purchase with cash offer. Any thoughts? The income I have is fairly stable, but it comes from a tribal gaming enterprise (I am a enrolled tribal member) and there have been economic influences that have lowered the amount, as well as threat of disenrollment due to tribal politics (could happen to me theoretically).

By the way, with my credit, I can get a loan of 3.5 percent.

Thanks

[gipi]

I'm not a financial expert but, debt scares me. I've managed to get myself out of it twice and the second time with all intentions of not getting into again. However, rent is a monthly expense, and a mortgage isn't so different. With the instability of the economy, it would seem wise to maintain a healthy savings account. Perhaps a 50-75% down-payment would allow you to keep a decent amount in your savings account and a lower monthly payment so that if the income did drop considerably you'd still be able to manage it. Just an idea.

[Gailete]

Yes, an amazing amount of money for one so young.

My question is. Do you plan to return to CA? Do you plan to stay in Texas? If Texas is to be your home then by all means buy a house to live it and if you feel better about doing it with a loan, then do it with a loan as long as you put a down payment down that keeps you from having to pay a PMI. You sound a tad nervous about paying it off in full and so if that will stress you, then don't. You obviously have the income to make a healthy monthly mortgage payment although I would go for the 15 year flat rate mortgage instead of a 30 year one.

[loebster]

It seems like you and your family are doing great financially so I wouldn't be too worried about taking out a loan.

The truth about the mortgage deduction is that it matters very little in a low interest rate environment. So on a $280K loan (350K minus 20% down payment), you are only paying $9800 a year in interest. This is right around the standard deduction, so you would need a lot more deductions to make this matter anyway.

The only other question is whether you can do better than 3.5% on your money elsewhere at the moment. I think you totally can do better than that through some very simple portfolios.

Don't be afraid of debt, owing someone else money is a fantastic hedge against inflation. So in short, take out the loan and welcome to Texas!

[loebster]

Remember "The borrower is slave to the lender".

I suggest avoiding debt if at all possible.

Nonsense. There are plenty of good reason for taking on debt, this is one of them.

[MonkeyMama]

If you are having trouble deciding, then also consider middle ground. IT doesn't have to be so either/or. There is no right or wrong answer. You are 30, you have about $700k and a paid off house. Whatever you have been doing seems to be working for you. I feel like this really comes down to personal preference. Either you want to skip the debt, or you are comfortable with leveraging. I am personally in the middle so I would maybe consider putting 50% down or something like that, in your shoes. Interest rates are really low and I Can see not wanting to tie up the full $350k in a house. On the flip side, with that income, it would seem to me to be the same difference to just pay cash and invest what would have been a large mortgage payment (a few thousand dollars per month?). Which is why there is really no right or wrong answer.

{I do often see people in your shoes talked into debt by mortgage brokers and investment managers. So, just make sure it's a decision that makes sense for you. If you are only considering the borrowing option because everyone else seems to think you should borrow the money, then screw that}.

[Like2Plan]

I can see merit either way. Financially, I think loebster is right--you would probably come out ahead by taking the loan and making investments--though it does seem like your investments as a whole are pretty conservative for your age. (But, with your income stream maybe you don't have to take on as much risk.)
Paying cash may give you more of a feeling of security. Also, if you are in a hot market with bidding wars and so on--an all cash deal might give you an advantage.
Of course, MonkeyMama also gives good advice--if you can't decide, do a little bit of both.

[snafu]

To me age is the tipping factor. At 30 y/o a 3.5% mortgage with 20% DP is sensible presuming there is responsible, trustworthy management of the house in CA. In the future you have the option of increasing mortgage payments directly to principal, selling house in CA, or whatever changes you decide are in your best interest.

[LivingAlmostLarge]

What is your long term plans? Stay where? Live where? Become a landlord long term? Will your children be able to get tribal income of $15k/net a month? Generate a passive income stream for them? Why are you living in TX now and for how long?

[leaderscorp]

As long as your job is stable and you are producing enough income along with your wife, then there is no reason for you to be afraid of getting a mortgage. You just need to determine your long term plan first for you and your family.