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How to Buy a Home WITHOUT a Mortgage

By on Aug 6, 2012 in Debt, Real Estate | 29 comments

home without a mortgageAbout 6 years ago, I didn’t even think it would be possible to buy a house without a mortgage. I thought the only way I will ever own home is to borrow money. Man, was I mistaken. Looking back at all of the interest I have paid to banks makes me sick. I knew there had to be another way and there is.

 

How this couple bought a home without a mortgage

John and Kristy get married at 22 years old. John has a job paying $40,000 and Kristy is a teacher making $30,000. This is a combined income of $70,000 per year. They decide to live as cheap as they can until they can afford to buy a house with cash. They rent an apartment for $600 per month and decide to take very inexpensive vacations over the next 5 years. They are able to live on $40,000 per year which allows them to put about $30,000 into savings each year.

So in 5 years, they are able to save up $150,000 and pay for a house with cash! This means that at age 27, they will have a paid for house and be completely debt-free. But wait how can I live on $40,000 per year with taxes, rent and everything else I have to pay??? Glad you asked, here is a breakdown of what that would look like:

Rent: $7,200/year ($600 per month)

Food: $3,000/year ($250 per month)

Utilities:  $1,800/year ($150 per month)

Vehicles: $4,800/year ($400 per month)

Entertainment: $1,200/year ($100 per month)

Misc: $3,480/year ($290 per month)

Giving: $7,000/year ($583.33 per month)

Taxes: $7,440 (Marginal Tax rate of 15% with average of 10.6%)

Total: $40,000

If you think that is crazy, check out people that are living on less:

Jason and Danielle live on $14,000 per year. Find out how at their website Blissful and Domestic.

Jacob lives on $7,000 per year. Check out how at his site Early Retirement Extreme.

Well, that is great but I already have a mortgage. What should I do? You should check out How to Pay Your Mortgage Off Early.

Would you like to have a paid for home someday? Would you consider buying a house without getting a mortgage?

    29 Comments

  1. The discipline sounds tough, but I bet the pay off is REAAAAAAALLLYYY nice…

    LD

    August 6, 2012

    • So true. We don’t have a paid for house yet but we plan to pay it off in 6 years. It is difficult to stay disciplined at times, but I am sure that it will be worth it when we won’t have to make a mortgage payment anymore :)

      Deacon Hayes

      August 6, 2012

  2. Deacon,

    This is a fantastic post! Holly and I were just talking about this yesterday. We posted about how we are paying off our mortgage early and got a little bit of negative pushback, as expected. It is as if some people don’t realize that you actually CAN buy a house with cash. It is possible. Financing is so ingrained in our way of life that some people look at you like you’re a lunatic for going off the “prescribed” course. Great post!

    Greg@ClubThrifty

    August 6, 2012

  3. This is a great challenge, even more achievable today with the collapsing prices of real estate. Don’t know about the median home price in your area, but I sometimes look at houses under 100K in GA or TX, and you can get great properties! Your example couple could totally make that kind of money over there, and buy a house after 3 years!

    Pauline (@RFIndependence)

    August 6, 2012

    • You bring up a great point. It is relative to where you live. In some places you can buy a house for $50k and in other cities it could cost you $250k for something similar. If you don’t mind moving, considering a state with lower real estate costs like GA or TX isn’t a bad idea.

      Deacon Hayes

      August 6, 2012

  4. Wow! I wish we would’ve done this. We were making about $75K (and I’m a teacher) before we had kids. We were living in an apartment and even down-sized to a 1/1 just to save money before buying a house. The problem? We had no budget and had no earthly idea where our money was going. It would be awesome to not have a mortgage especially since we’re paying $570/mo. for childcare. Great post.

    whitney4110

    August 6, 2012

    • Whitney, you are so right. Having a budget is key to making this happen. You got to have a Financial Gameplan and stick to it to achieve your long term goals. Thanks for the comment!

      Deacon Hayes

      August 6, 2012

  5. That’s my goal! I’ve purchased two homes, sold one and paid off the other. I plan to buy another home in about a year and pay cash. I can’t even describe how great it feels to not have a mortgage.

    I am currently saving my old mortgage payment. I figured since I was living without it for so long, why not continue to do so.

    callmewhatyouwantevencheap

    August 9, 2012

    • That is great to hear that you are completely debt-free! I think it is awesome that you are able to put your old mortgage payment into savings. Thanks for sharing!

      Deacon Hayes

      August 9, 2012

  6. This is great stuff. I hope to buy a home without a mortgage someday. I’ve been living on half of what I make for a couple of years now and my goal is continue it. I’m 28 years old and have set goals for age 31 to be able to buy a home in cash, if I want to. I want the option at that point. I have other ideas on what the do with the money if at that time, the timing isn’t right. Again, this was a great post and very inspiring!

    Kraig @ Young, Cheap Living

    August 12, 2012

    • Kraig, that is an awesome goal! To be able to have the discipline to live on half of your income is admirable. Way to set a great example!

      Deacon Hayes

      August 12, 2012

  7. One of my goals in life is to pay cash for some of the big things like a car and a house. I definitely think it’s possible, I’m trying as hard as I can to live from half of what I earn right now, including vacations just to get rid of my debt (housedebt only left now) so i can save save save and just pay cash and MAN does it feel good to throw down money and pay for something in full!

    Andrea

    August 29, 2012

    • Andrea, that is an awesome goal! We actually paid cash for two cars this year and it does feel good to not have to borrow from anybody. Keep me posted!

      WellKeptWallet

      August 29, 2012

  8. It IS possible, it’s true. I think the $600/month rent won’t work in some areas, but it’s amazing how you can stretch a buck if you need to! And for my wife and me, we saved a lot so that we could put a huge down payment on a house, and while we still needed a mortgage, we needed less of a loan than if we hadn’t saved at all. So even if you can’t pay entirely in cash, you could certainly get close!

    TB at BlueCollarWorkman

    September 4, 2012

  9. I have been living on less than $25k for several years. I was just able to buy my first house a couple months ago. I do have a mortgage, but I bought a cheaper house and my mortgage is just over half the amount I was paying in rent. I am putting that extra money each month onto the principal to pay it down faster.

    It is possible to save for the future even when you have a small income. It is hard, but if it means a lot to you, you can do it.

    Cynthia Skelton

    November 2, 2012

    • That is great to hear! We are paying down extra on our mortgage and are planning on having it paid off in 5 years. Can’t wait!

      WellKeptWallet

      November 3, 2012

  10. This is a good post applicable to today’s US market. I think it is feasible to spend minimally for a few years in order to save up the full amount for a house only if real estate inflation remains steady or drops as it has in the US. I don’t believe this would work when real estate picks up again.

    This concept would not work for me due to property steadily increasing in value. In my city, the entry townhouse price is $300k while the housing price averages 6% annually. This means that one would have to save $18k on top of 1/5th of the original price to keep up with inflation.

    Goldeneer

    December 3, 2012

    • Buying a house with cash isn’t for everybody, but if you can, then that would be awesome. Thanks for dropping by!

      Deacon

      December 3, 2012

  11. My only issue with this is that retirement savings and savings for things other than the house aren’t accounted for. I would rather take a loan to buy a house than spend every penny of my savings to buy the house in cash.

    Gen Y Finance Journey

    December 4, 2012

    • You bring up a really good point. This scenario works much better if you are 22 then it does if you start saving for a house at 40. It does depend on where you are in life and what your financial goals are. The goal of this post is to inform people that it is possible to save up and pay cash for a house. It’s not for everyone, but just imagine what that what it would be like to own a home and be completely debt-free at 27. Wouldn’t that be something?

      Deacon

      December 4, 2012

  12. Where do houses cost $150k? Here, a basic 3br house would be $900k. So this only works where the housing prices are cheap.

    Her Every Cent Counts

    February 4, 2013

    • Well I can tell you that you can buy plenty of house for $150k in Phoenix, AZ. I am sure it depends on where you live, but typically if the median price of a house is $900k than the median salary to pay for it is MUCH higher as well.

      Deacon

      February 4, 2013

  13. Lets not forget. There is no such thing as rent free living. You ALWAYS pay rent, even if it is just to the State in Taxes. And if you live in TX like it I do. property taxes are HIGH.

    Dan

    February 5, 2013

  14. Im trying to learn how i could own a hous without paying mortgage

    Charles Kindred

    April 2, 2013

    • Glad to hear it Charles. Buying a home without a mortgage is something that very few people do.

      WellKeptWallet

      April 2, 2013

  15. Excellent. My generation is so spoiled. We think it’s necessary to buy expensive jeans and always go out for expensive glasses of wine. When people have kids they think they need a massive baby carriage and an SUV. My parents bought a house and paid it off in 7 years. For a while they couldn’t afford milk and used water in their baking powder biscuits and had no furniture. I am currently living in Andalucia. I have friends who heat their houses with simple, homemade solar powered devices and plan to catch rainwater and purify the rest so as not to pay for water either. There are a lot of things one can do. I am currently trying to figure out how I can buy a very cheap house here (30,000€) but the money I make is so small (maybe 500€ a month), I am living a very different lifestyle and there is not much I can cut out. I need to find an alternative kind of non-bank that will not charge me interest.

    Kim

    June 19, 2013

  16. Surely if you can find a mortgage with repayments lower than your rent it makes no sense to not get one? I used to want on principle to avoid all debt but seeing that I could just treat my mortgage as “rent” that maybe one day ends in owning a house made it seem less logical to avoid it. If I don’t pay it all I lose is my home which is exactly what I’d lose if I didn’t pay rent.

    sam

    August 14, 2013

    • Hi Sam, I can totally understand where you are coming from. It definitely makes more sense to get a mortgage if it is cheaper than renting since you will stop having to make the payment at one point. However, if you could find a way to pay cash for a house this could save you hundreds of thousands of dollars.

      Deacon

      August 14, 2013

  17. Great post! If all perspective 1st time home buyers read and digested your advice they would avoid a lot of financially trouble down the road.

    Kathleen D

    September 27, 2013

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