FHA / Conventional mortgages OR Cash purchases???

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mortgage cash

Okay, so you have $200,000 sitting around and you feel like investing it in a home or two. Sounds like a wise investment, only if you plan on flipping the home. 

Kent Simpson talks about the abundance of cash buyers in some areas. Read this for more info : If There's A Recession On---Why Are There So Many Cash Buyers Right Now?

Personally, this is great for a realtor because they don't have to go through the headaches of waiting for the borrower to be approved for a mortgage. But is this the right decision for the person buying the property?



looking glass


Let's take a quick look into fundamentals of basic financing. In my opinion, it would be common sense to pay for a property in cash if I was going to flip it within 1, 3, or 6 months. It does depend on where you have this money and what kind of interest that you are receiving on this money. Meaning, are you making more on where the money is located? Can you keep a higher rate of return where it's at and get a lower interest rate?  Is it costing you some sort of penalty to withdraw this money?


Now, let's look into your investment without using your cash. If you were to keep the property for over year, it would be best to actually think of more long term than sort term. In my opinion, saying that you are going to sell the property in 6 months to a year is a huge risk, because you could be caught in the middle. Look at the foreclosure market in Florida. Many of these homes were bought as a flip home, but also by having a mortgage on the property with little money down. These types of investors didn't have a cash flow. This is a whole different subject in regards to investing, which can be talked about later.

There are really only two types of investors. Your short term investor or long term investor. And we can even define investor as someone buying a home as their primary residence or as their second home. All of these types of purchases have to be broken down, making sure that you get the best bang for your buck. You basically want to maximize your leverage.





Maximizing your leverage.....  What do I mean about this? You want to make your money work for you. You want to make your home work for you and not work for your home. This doesn't always mean by paying cash, putting down large down payments, or paying down your mortgage as soon so possible. By doing that, it just becomes a security blanket. Our parents parents were taught to either pay cash for things or to make sure things were paid off quickly. This could be true for some things, but you really need to break it down.

Overall, it's very easy to say that you want your house paid off as soon as possible. Again, this is just security and ease of mind for you and your future. But are you maximizing your money at it's fullest potential?  Probably not. There are so many different types of income vehicles out there that you need to learn about. Some of the cheapest mortgage vehicles would be the FHA mortgage, your pay option arms, and some different types of money merge accounts. Hence why you need to surround yourself with a mortgage professional, a good accountant/CPA, and a financial planner.  You need to have a game plan and a business plan. Don't jump into buying a home blindly, no matter if it is going to be your primary home or an investment property.



IMPORTANT TIP :   Word for the wise, be very careful and leery of those trying to sell you those programs that are promised to pay down your mortgage in 12 to 20 years. These are called Money Merge Accounts, by such companies as CMG and UFirst Financial. They aren't for everyone.  These are labeled as mortgage accelerator programs. And you even have people outside the mortgage industry selling these programs. Not saying that these programs are very bad for you, but they aren't the best of the best as advertised either. You need to speak to a mortgage professional that will show you all options. When someone sells you just one option and only one option, that is usually not a good sign.


ONE KEY THOUGHT :  The money invested in your house, especially if you paid it off, is not working for you. And it becomes even more crucial in what you are doing with your money, if not making a mortgage payment. Please read this comment by Adam Waldman : 02/24/2008 08:09 PM  The ending is right on. 


Disclaimer : Keep in mind, everything that I just mentioned above is solely my opinion, but based on 15 1/2 years of experience and knowledge in the mortgage industry




For more information on FHA loans, please go to this link. The FHA Expert

For more information on how you can obtain your dream home, please click here : Mortgage Financing Options

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!

Copyright © 2008  by Jeff Belonger

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Dave Woodson
Dave Woodson - Chesterton, IN
Not the Average Agent

I would rather keep as much of my 200k in my pocket.  I am sure that there are some financial planners out there that can help make more on your money than 6 or 6.5% on your money


Feb 24, 2008 07:28 AM #1
Joe Adams
Major Mortgage USA/Branch Manager - Montrose, CO
Jeff , leverage is the key word.  Why bury 200k cash into the home when you can put 12k in and invest the rest. 
Feb 24, 2008 09:21 AM #2
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


DAVE....  I think that is the wise way to go. With a low interest rate, you can put the least amount of money down and make the rest work for you. The money sitting in your house isn't doing anything for you.

JOE..... exactly. But so many are sold on the fact that they could pay down their house with some of these money merge accounts. For the most part, they aren't for most people. Only those that are super  disciplined should even look at these programs.


Feb 24, 2008 09:33 AM #3
Joe Adams
Major Mortgage USA/Branch Manager - Montrose, CO
Money Merge the new option arm........... shiver.   Had a client/friend ask me last night should they pay cash for the new home or................... I stopped them right there, you have the cash 20% down you get a great rate and invest the other large protion of money they are sitting on.... it is all about leverage.....
Feb 24, 2008 10:13 AM #4
Sandra Cummings
William Raveis Real Estate - Guilford, CT
Real Estate Agent, Guilford Connecticut
Jeff - The only buyers who I have dealt with that are interested in purchasing with all cash are short term investors. I don't know about anyone else, but it has been my experience, everyone else who plans on keeping the home for more than 6 months is always looking to finance a portion.
Feb 24, 2008 11:14 AM #5
Adam Waldman
Westcott Group Real Estate Company - Hauppauge, NY
Realtor - Long Island
JEFF - Many people think that paying off the mortgage and having the money tied up in the house is a way of investing, but it actually is basically the same as stashing the money under a mattress.  Now, it doesn't make sense to use the money unless you are investing in something that is going to earn you more money than you're paying in interest, but over the course of time, the stock market usually returns a higher percentage than what today's mortgage rates are.
Feb 24, 2008 12:09 PM #6
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate
Jeff, I own a building in Paducah with my brother, we inheritated it from my parents, it is worth about 300k and just sitting there. We have had a long term lease with the Salvation Army and now they are moving, it is downtown and a great location, but I hate to have it sitting. My brother just won't pull money out to invest. ugh
Feb 24, 2008 12:18 PM #7
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


JOE......  well, I don't really agree with the MMA accounts. And those that sell them, the pay option arm would be the same or even better if used correctly. The MMA programs are new in the US. Even those that say that these programs were successful over in Europe and Australia, haven't been doing their homework.  Just poor word of mouth and bad rumors, not good.

I n regards to your last statement...  that's the way I would go...   leverage. Sure a lot of it has to do with the rate that you get, but as Adam stated, the stock market usually gives a good rate of return in a certain time period.

SANDRA..... and this would be the typical scenario. You won't see too many buying their primary house with cash. But many investors will buy with cash. My only problem with that is the term of that property. How long will they keep that property if they paid cash. 

ADAM..... I agree, hence what made me write about this again. And I wanted to add more to this, in regards to your last sentence, but I didn't want to make this post too long.  thanks for your input.


MISSY....  hhhhmmmm....  maybe you should have him read this. Sure, you have equity and untapped cash.. but that's exactly it... cash that is just sitting, not collecting anything but dust.  Pull some of that cash out at a low rate and invest in the stock market or real estate market to double your money.

How about this, what about buying him out of his portion?  Maybe you could put some numbers together ... some figures that might make it worth your while to make an offer to him.... ???? 


Feb 24, 2008 12:39 PM #8
Lisa Hill
Florida Property Experts - Daytona Beach, FL
Daytona Beach Real Estate
I've had several cash buyers! And I've had a few that didn't have all cash, but they had way more than what you'd expect from the average buyer.
Feb 24, 2008 01:42 PM #9
Thesa Chambers
Fred Real Estate Group - Bend, OR
Principal Broker - Licensed in Oregon
with rates so low it does not make sense to use it - unless of course it is like our area where a 1031 is very common place
Feb 24, 2008 02:54 PM #10
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


LISA.....  that's great.  I know realtors like this, because these don't usually fall apart nor do you have a lender that might kill the transaction.   And those that had more than enough, again, it depends on what they are buying the property for and how long they plan on keeping it.

THESA.....   I know just enough about the 1031 exchange. It all depends if they are selling the property and how much they walk away with.... and if they are going to invest it in a certain time period.


Feb 24, 2008 04:35 PM #11
Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL
Jeff, ENjoyed your disclaimer..lol  Great post by the way including the part on the money merge accounts.
Feb 24, 2008 09:44 PM #12
Dan Forbes
Bradenton, FL
Jeff, I appreciate your educational posts.  Putting dead money to work for you is a good idea.
Feb 24, 2008 10:45 PM #13
Dan Hartman
Province Mortgage Associates - NMLS #2861 - Providence, RI

Jeff, great point about using leverage.  Why tie up your money?  The house will provide the same profits whether you put down 10% or 100%. 


Feb 25, 2008 07:07 AM #14
Deb Brooks
Brooks Prime Properties Wichita Falls Texas - Wichita Falls, TX
Well Jeff, I think it's a really good opinion. I wish I were stong enough and smart enough to follow it. That may be a strange remark but when you are working so hard on bringing in the cashflow it's easy enough to let the details slip by you. I vow to read your posts more often. You know what you're talking about. Later in the rain~Deb
Feb 25, 2008 12:48 PM #15
Kent Simpson
Realty One Group Mountain Desert - Tucson, AZ
Real Estate Is About People
Personally, Jeff--I'd rather let my credit work for me than my hard earned money, but as you said, it sure is nice for us agents to not have to wait for a loan to process!  By the way, my name looks good at the top of your blog...thanks!
Feb 26, 2008 02:34 PM #16
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