Save cash for a house or get a mortgage?

[gloriousfifty]

Hello,
My family is moving in a year. Our current house is paid off. A similar house at the new place costs more. Should we stop our retirement and college investing to save cash for the new house, or get a small mortgage and pay it off quickly? Thanks for your input.

[Goldy]

My question to you is how much do you currently have saved for retirement? Generally I would opt for the small mortgage instead of possibly derailing your retirement but if you already have 2M saved then my answer would change. Check out Zillow.com for mortgage rates. You can get a 15yr mortgage for about 3% with $380 in closing fees and after the mortgage tax discount your rate is actually closer to 2%.

[lorraineb]

Could you live in a smaller house? That would be my first choice if it was doable which would mean no extra out of pocket money. I assume you will be living in this new house for at least 5+ years? If not, then it would probably be better to rent. if the only choice is mortgage or raid college/retirement funds, I would get a mortgage.

[PSF]

This should not really be an opinion thing, it should be a calculation thing. For example:

Interest earned on your investments/savings vs interest paid on mortgage. Include tax treatment and any mortgage fees.

If you are going to earn more from the money being in your investments then what you'll be paying on interest in the mortgage, get the mortgage. If your investments wouldn't cover the mortgage interest costs, avoid the mortgage and then just save hard to build your money up again.

There should be plenty of calculators on the net that can help you with this, check out the rent vs buy calculators too.

[Jerry91]

Well, I don’t think it is a good idea to stop your retirement or college investing in order to save cash to buy a new home. If you meet all the required criteria of the lender, then you can qualify for a mortgage in order to buy that new property. As others above have suggested, you may look out for a smaller mortgage and maintain your retirement savings.

[snafu]

If you're moving to a high COLA you may need to lower expectations and buy a smaller house or one in need of updating or out in the suburbs. Don't cut back retirement savings as those funds benefit most from the magic of compounding over the long term.