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Should I pay cash for a home or get a mortgage and receive a tax credit?

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March 18 2009 - Saint Louis
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Answers (7)

I believe it is important to asset allocate your funds. With longer term rates so cheap and the deductibility of the interest. You need to make your money work for you. I have seen too many time were someone put all their egg in one basket, only to get hurt. Once the funds are in the home you can only get a hold of them by selling or getting a loan. In either can be costly, cash is king. Keep as much as you can liquid for other investments.

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December 29 2010
If you can afford it pay cash.
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April 17 2009

There are so many variables that come into play with this question. Without looking at your specific situation and crunching the numbers, I don't think there is any way to give you the right answer.

The most important factors to consider would be: the cost of the home, the type of mortgage you would be seeking and what the interest rate&closing costs would be, how long you plan on owning the home, would the home be for you or would it be for investment purposes? Although I would love to help you with the actual purchase, the best person to turn to for this situation would be a financial advisor.

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April 16 2009
Profile picture for prfstrkr
if u have confidence in stock market, then mortgage
if u put all extra $$$ in savings or CDs, then cash
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April 16 2009
Profile picture for jtoebben
Always pay cash if you can. The credits are never good enough to keep you in debt!!! Look at the Total Money Makeover by Dave Ramsey - www.daveramsey.com
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April 16 2009
Just to clarify, whether you pay cash for a home or use a mortgage, you will still qualify for the $8,000 tax credit that is currently in effect for first time home buyers. This of course is different from being able to deduct interest off of your taxes if you have a mortgage.
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March 19 2009
Profile picture for jgabriels
A tax credit is a credit on the interest you paid.  The credit will never be more than the interest paid.  
That being said, a fully paid off house still costs you money as the money
that could be earning you money is tied up in the house.

One example would be if you can get a mortgage for 5% and the tax credit gives you half of that back, if you can get a tax exempt bond that gives you more than 2.5% (or any other investment that has an after tax return of greater than 2.5%) then you would come out ahead.  



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March 19 2009
 
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