Mortgage or Pay Cash?

If You Have Cash, Do You Need a Mortgage for Tax Benefits?

Facts: I had about nine credit accounts (cards and a loan). The smallest credit was $350 and the biggest was $3500. I also had American Express. My credit history spanned over only four years.

Due to MAJOR illness in 2003, my credit was ruined. I became disabled to work and/or continue to study. (I'm in my 40's). I have made no payments since 2003 because I was penniless.

Stemming from a medical malpractice lawsuit, I was awarded close to $8 million dollars a few months ago.

Though I will be able to buy a home cash (after payment is received in 30 days time), I have been strongly advised to use a mortgage (due to tax benefits) to purchase a home.

Question: 1) Do you think I will be able to get a mortgage with such poor record?

2) Do you think I will be able to benefit from very low interest mortgage rates because of the financial assets I will have?

3) Or will the money makes no difference and I have to deal with very high interest rates reserved for disastrous credit such as mine?

Knowing will help me make informed decisions.

Thank you.

S.P.

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Do you know what your credit score is? Have you checked your credit report?

I would suspect you score is low and that you have charge-offs on your report.

On the other hand you have a lot of cash available.

If you put down 50% or more on a house, you might get a decent mortgage rate, but the lender might force you to pay off any charge offs on your record.

I doubt you'll qualify for the lowest mortgage rates around.

But, why do you need tax benefits? The proceeds of the lawsuit should be tax free. You say you have not been able to work, so what do you need a tax shelter for?

The only reason you might want to use credit is to try to re-establish your credit record. However, you should have enough money - even after attorneys' fees - that, if wisely invested, should mean you never have to work again - unless you have high continuing medical expenses.

I would consult with a fee-based financial planner or a CPA and first, determine if you need tax shelters at this point and how much benefit they would be to you; and second, how to invest your money to last you for the rest of your life.

Be careful of the leeches that will approach you with all sorts of investment schemes of dubious value. Stick with a well diversified investment plan using stocks, bonds, real estate and maybe some gold. Watch your fees and expenses and consider ways to minimize taxes on your earnings.

I wish you luck. It sounds like you need some after several very bad years.

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True, the award money is tax free but that's not the tax I meant. The tax benefits I made reference to, are benefits to reduce taxation on the gains I expect to receive on investment of the money.

Regarding the credit issue, I do have one charge off ($1025) and two judgments ($1107 & $800) on my credit and I have not seen my score since 2003.

(The medical bills are not all that much - in fact, they are rather small given my medical problem.)

Thank you very much; your suggestions are valuable and much appreciated.

S.P.

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