Should I buy a house in cash or mortgage it?

Let’s say you have $100K and there’s a small house for sale. It would be your first home, and you plan to get another house later. If you have the cash, is it better to buy the house outright since interest rates are currently at 7%, or should you get a mortgage and space out the $100K—maybe putting $30K down on this house, $30K on a down payment for the next house, and the rest into investments? What would you do and why?

You need to give more details about your financial situation. If you can earn 12% in the stock market, does it make sense to buy? Are you currently paying high rent? Most people would put some down and invest the rest. A small mortgage at 7% and earning 12% on investments would be a 5% annual win.

Invest it. The S&P 500 has gone up about 19% this year.

It depends—do you have enough saved to cover potential repairs and maintenance for the house?

Paying in cash is like getting a guaranteed 7% return since you’re saving on interest. There’s no other risk-free investment that will earn you 7%. Plus, having a paid-off house reduces your overhead, giving you more room to take investment risks elsewhere.

@Fiona
This take is overly simplistic and doesn’t consider other factors. Be careful with this logic.

At 7%, I’d probably pay in cash as long as it doesn’t wipe out your savings. How soon are you planning to buy the next house? If it’s less than 5 years, maybe keep renting.

I’d take the 7% guaranteed return by paying cash. I’m currently paying down my mortgage aggressively because my interest rate is 2.3%, but if it were 7%, I’d pay it off for sure.

Bryn said:
I’d take the 7% guaranteed return by paying cash. I’m currently paying down my mortgage aggressively because my interest rate is 2.3%, but if it were 7%, I’d pay it off for sure.

That only holds if rates never drop. What if they go back to 4% in two years?

Mortgage it. You won’t keep a 7% rate for 30 years. Even if you keep it for a year or two, you’ll still have 80K invested that’s potentially growing. Your home will appreciate no matter how much you put down. I’d suggest putting 20% down and investing the rest, especially if you plan to buy another house in a few years.

I’d suggest leaving some cash for emergencies, since new homes often have unexpected expenses. Put a good amount down to lower your mortgage, but keep enough savings to stay flexible.

Take out a mortgage, keep enough cash for one year’s worth of mortgage payments, and invest the rest.

Dave Ramsey would say buy in cash if you can. But make sure you have an emergency fund first. Look up Ramsey’s baby steps for guidance.

Is this a real scenario? Interest rates are closer to 6%, and they’re expected to go down further. I wouldn’t give up liquidity just to lock in a 5% return.