Reader Mailbag #1

As of late, I’ve started to recieve some reader questions and going forward I will aim to answer key reader messages as they arrive in my inbox via  If you have a question ask it in the comments or send an email to blog at scordo dot com.  
I have never bought a house before, so I’m really not savvy about mortgages or HELOC’s.  However, my boyfriend and I are good savers.  We have enough money to liquidate our stocks/mutual funds and pay all cash for a house and still have enough cushion for maybe a year’s worth of expenses.  However, my boyfriend prefers to keep even more assets on hand than that.  So we are planning to get a mortgage to pay for part of the home price.  Right now we can get a mortgage for about 5.25% interest, and of course there will be fees etc for setting up the loan.  
My question is … would it be better for us to get the conventional loan on the mortgage when we buy the house, or would it be better for us to pay ALL CASH for the house and then get an equity line of credit for whatever amount that my boyfriend wants to have on hand for emergencies, etc?  Right now Charles Schwab is offering an equity line of credit with no lender’s fees and an interest rate of 3.99%. 
Is it possible to get a 30-year fixed rate with regular monthly payments on the HELOC, something like what we would have on a regular mortgage?  If so, it sounds like it would make more sense to get the HELOC for 3.99% instead of the regular mortgage for 5.25%.  But if the HELOC interest rate is something varies all over the place, then it’s probably a safer bet to go with the regular mortgage that we know will be only 5.25% for the next 30 years.
What do you think?
THANKS for your advice.
Anne in San Francisco
– By liquidating your stocks/mutual funds will you therefore have nothing saved for retirement?  My general advice is to not touch your 401K dollars and/or retirement savings to pay for a house.  If possible, it’s best to both save for retirement and a home purchase at the same time.
– Historically speaking 5.25% on a 30 year fixed mortgage is a good rate.  I do recommend putting down at least 20 percent on the purchase of a new home; but at 5.25% I would put down more than 50% (you can always pre-pay, just make sure your mortgage has no pre-pay penalties).
– If you have enough cash on hand to both purchase a house for cash and have a 12 month emergency fund then I would not recommend leveraging a HELOC for an emergency type fund.  It sounds like you have enough money to put down a great down payment (say 50%) and have an emergency fund at the same time (without using a home equity line of credit, regardless of interest rate).  
– Have you tried finding a rate on a 15 year fixed rate mortgage under 5% (those rates should exist, especially on a non Jumbo)? 
– Finally, remember I’m not a mortgage specialist so you should ultimately consult your financial advisor and mortgage specialist when making your final decision.  Also, remember that you need to live with your financial decisions for the rest of your life so think hard and make a logical decision.   

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