So, as part of the challenging your belief series that Invest it Wisely has held, I wanted to add yet another article to the mix. Today I would like to challenge the belief that everyone has to have a mortgage in order to get a house.
So, here is the typical American Process:
- You start dreaming about owning a home.
- You figure out what features you want (2 car garage, hardwood floors, granite counters, etc).
- You start watching HGTV and get a grossly unrealistic expectation of what a normal American household can afford.
- You go online and find mortgage calculator to see what kind of monthly payments you can squeeze out of your monthly budget.
- You then shop for a house in your price range, realize that you can’t find anything that meets your criteria and either lower your standards or up your price range.
- Suddenly when you increase your price, you find the home you want and love.
- You take out a loan for 30 years, call it a good investment and hope you don’t lose your job between now and 2041.
So here are some other options that most people wouldn’t even consider because it doesn’t necessarily fit the middle class model everyone’s striving for. The reality is for many of us, we’re only pretending to be middle class and can’t really afford the lifestyle we’re leading on the salaries we make.
Buy a Mobile Home
The average cost of a brand new single wide is about $36,000 and a double wide is $73,000. I don’t know about you, but $36K is something that a lot of people could pay outright if they wanted to live debt free. What most people don’t want to do is live in a trailer park.
Now, don’t turn your nose up yet. You don’t have to have a neighbor that’s a wife beating wearing, high school drop out who’s idea of fun is crushing cans of Schlitz on his forehead. Perhaps someone has a plot of land that they could rent out to you instead. I see many of these homes in the country on farms. I’m sure it’s not as uncommon as people think. In fact, I believe Molly on Money has a double wide that she’s absolutely in love with and it’s sitting on a huge chunk of land. She’s the last thing I think of when I think trailer trash. She’s running around living the dream, raising chickens at Chickentopia, tending her bees and saving money hand over fist. Life is good.
Buy Land and Build as You Go
Now this is my current romantic dream. This was very common in Poland where credit wasn’t available until recently. My cousin has a gorgeous house that is fully paid for, but I think it took a decade before it was habitable. First you bought your land, then you saved up and bought the cinder blocks, then you saved up to hire the brick layer etc.
If you started out with your trailer, you could move right onto your dream plot of land and start saving and building your dream home one step at a time…all while remaining 100% debt free. If hard times strike, then you scale back and postpone a step til you’re back on your feet again. In the meantime, you have a roof over your head and your dream plot of land fully paid for. If for some reason you had to sell to relocate, you have more freedom. For example, even if the value of the place goes down, it’s already paid for so you don’t have to fight with the bank over a short sale or write a big honking check at closing.
If it were me, I’d probably start with one of these Tiny House Plans that Little House in the Valley is obsessed with. I’d live there for a little while and eventually turn it into a cute little guest cottage or rental once I move into the final dream abode. My dream hunk of land would be big enough for a large garden and guest house by the way.
Buy a Multi-Family Dwelling
This is quite common in the city. This is the type of home my mom bought with cash on a minimum wage salary back in the 70’s.
$90,000 Multi-Family
Even today, it’s still feasible to buy a multi-unit apartment, live in one unit and have the mortgage paid by the other renters. Here in the Northeast these popular apartments are called “3-Deckers.” The one pictured here is only 2 units, but is currently for sale in my mom’s old neighborhood for $90,000 and is over 4000 sq ft. That’s for the whole house, not just one unit. For those of you who don’t know, Worcester is about an hour from Boston. Many neighborhoods are pretty rough, but they are VERY affordable.
I also know a few guys who each bought 1/3 share in the 3- decker. It’s not for everyone, but they were all responsible and got along fine. Again, I do see it as feasible to come up with $45K each and then pay as you go to fix this place up. There are some cities where these units are untouchable in cost, but often times, the neighborhoods that are filled with rentals have a lower property values than areas with just single family homes.
Live in a Caravan
I actually know more than one family with the wanderlust who up and sold their house, bought a caravan and lived in it for a while while traveling to their favorite places. One couple was retired and traveled around to try to determine where they want to retire for good in the states. The other couple was younger and moved from the US to New Zealand and spent 2008 living in a caravan with their 2 young children. Their travel adventures are documented here. Oliver is now a wonderful professional photographer and is also living a dream life down under. Both of these families aren’t granola eating hippies (Although I do think they eat quite healthy, actually they probably do eat granola come to think of it). They were highly educated engineers that decided to live life a little differently to enable themselves the freedom to pursue their passions.
Buy Way Less House than You can Afford
This is the route I personally took. I planned on having the house paid off in 7 years, but then life happened and we made the decision to move Babci to the town we live when my first son was born 5 years ago. (Yup, we bought a second house in 2005 at the peak of the market. Yes it’s worth way less than we paid for it and no we’re not planning on defaulting). If we really bought our first house with the 1/3 of your income rule of rule of thumb, there is no way we could have managed to move my mother to town and I’m so thankful that we had the flexibility to make that decision.
Although we still have mortgage debt, I’m on a mission to pay it off as soon as possible and I have no qualms dumping any extra cash at the end of each month to my friends at Wells Fargo. In the end, I’m glad I had the option to borrow money, but if I had crappy credit or an even bigger aversion to debt than I already do, I really do think it’s possible to still use cash to buy your home.
Summary
Some of the most interesting people in my life have figured out how to live a completely debt free existence. No, not consumer debt free, but 100% debt free, including the mortgage. These people are not bound by conventional wisdom and thankfully don’t believe that there is just one cookie cutter way that a person must go through life. You don’t need to finance your way of life. It is possible to pay with cash. Oh and by the way, all that money you are saving by not paying interest now might just allow you to upgrade to a nicer place sooner than you would have been able to otherwise.
If you don’t earn a lot of money, you may have to take on 2 jobs for a while to get ahead, or go to night school while working full time so that you can land a better paying job. (I worked over 30 hours/week while going to engineering school). Does it suck doing that? Hell yeah, but it’s not forever and I did manage to sneak in some fun here and there while managing my hellish schedule. You know what Nietzsche says, “Whatever doesn’t kill you will only make you stronger.” If you’ve got enough gumption to sacrifice a few years of your life now so that the rest of it is easier, then I say go for it and don’t look back.
Don’t focus on what’s not possible, focus on what is possible. If someone else can get there, so can you. That is what the American dream is all about. There is no rule that says your childhood upbringing dictates your future status in life. If an uneducated immigrant like Babci who never made it past 6th grade can arrive in this country at the age of 36, not speak a word of English and in 10 years buy a house with cash, I’m sure you can too.
Like Invest it Says, sometimes it’s good to challenge conventional wisdom because it may open your eyes to a whole new way of living.
What do you think? Do you think it’s possible? (The answer should always be yes by the way). What things are you not willing to sacrifice in order to live debt free? Is it the car, the school system, a safe neighborhood to live in, being able to have one spouse stay home with the kids? I’m curious to know.
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Not the neighbourhoood. Never the neighbourhood. Doesn’t have to be flash, but it needs to be safe.
Can’t say what I’d be willing to sacrifice in the future, but for now we live in a tiny studio and only have one car. I should probably try to calculate how much that saves us a year!
I can’t say that my neighborhood growing up was very safe. You do eventually learn some street smarts and most people end up surviving just fine. It was okay given our circumstances, but not something I’d sacrifice these days.
The biggest problem is that the community is very much against each other in crime filled neighborhoods. There is no trust, there is no pay it forward mentality. It’s more like “you gotta screw someone else over before they screw you”. It’s really a horrible attitude to have and it’s much nicer living in a community where people like to and want to help each other instead of steal from each other.
I personally sacrificed size and condition of my house, and I am in a bad school system. The school system thing crossed my mind, but at the time, I had no kids and I figured when and if I do have them we could always move once my kids got school aged. Moving’s a pain though.
Yeah to double-wides! When we went to purchase a home we could have qualified for a mortgage double of what we actually got our loan for. The land was beautiful and that’s what sold us (yes, the double-wide was not a huge selling point). When things got tough for us and we were almost broke we started to really appreciate our home. The mortgage payment was less then if we were renting.
The major con of a double-wide or a manufactured home is that they de-value over time. Our land value has increase in value but if we had had a conventional framed home the property would be worth even more.
Thanks for mentioning me in your post!
Apparently I’m not willing to sacrifice much. This mortgage will be around for at least 4 more years unless we sell.
Sandy, this is a fantastic post, and certainly challenges common beliefs on mortgages. I wish I had read this a few years ago and planned a different path to mortgage-free homeownership. For now, my plan is to pay off this existing mortgage as quickly as possible, and never go back!
This is a great post Sandy. You are so right about HGTV. I am obsessed with it. I wish my cable had a feature where I could reach in and smack these unrealistic couples that want granite/marble everywhere, not a thread of carpet, nice neighborhood, etc for minimal prices through the tv. (I also want to smack the ones that want to spend a ton of money on a grandiose house when they are in their mid 20s.)
Anyway, I think if you buy a mobile home, it is best to do it on your own tract of land like you mentioned. Trailer parks can have very high lot rents, and you end up locked into that since mobile homes have very poor resale value.
I would love to pay my mortgage off, but it would be a large chunk of change. I pay down extra every month, but I can’t see being able to move it up much quicker than it already is. My extra money will probably go toward home repairs.
I do not want to wish my life away, but I am excited for when my home debt is gone. 6.5 more years! (Loved that I did the 15 year mortgage!)
We rented below market and saved money for sixteen years. We did buy our first house with a mortgage. We had purchased the land ten years into the marriage- and it was paid off. We then constructed the house. It was easier to get a builder WITH a construction loan/mortgage (still not sure why).
We sold that home in 2006 – not quite the top- and bought our current house with cash. It has great bones but needs all of the fixer up things (counter tops, new fixtures…). We have ideas to build a small house for us somewhere on the 17 acres in the next 10 years and try to convince one of our kids to move into “the big house” for free. Maybe it will work. It would be nice to pass on the house debt free.
So- in our 28 year marriage- we had a mortgage for six years.
It was worth it. Now, we can live on my husband’s pension and be quite content!
I could easily live in a van. I’m sure I could find when I would need to find to do what I needed to do for health and food, etc…
But with kids, they are like clay, and you shape them, but so does their environment. So I would want a house in at least a good, safe city/town with a great (or at least good) school system. The house size wouldn’t matter so much, but a nicer house may give them confidence… The key is stability and support…
Nice detailed article…
Right on.
Very interesting post. One problem with mortgages also is that when they are sponsored by the government, they inevitably lead to a credit build up that sooner or later turns into a bust. A lot of people get hurt by that, especially the people who bought when home prices were high. In Canada right now that $90,000 home would probably go for at least $200,000 in the countryside, and double or triple that in the city. It’s nearly impossible for a young couple to afford a detached single family home within a short commute distance to the center of the city. In Toronto I think it’s at least half a million for that, and more than double that in Vancouver.
Would prices have been bid up so much if not for easy credit? Probably not. I don’t know how the bubble will be deflated; it might not be a U.S. style burst, but clearly single family homes at $1 mill in Toronto and $2 mill in Vancouver and prices continuing to skyrocket doesn’t make too much sense, either! Not if incomes are not also skyrocketing along with prices.
The fact that mortgages in Canada are all recourse would affect the dynamics some what. I think a “Zombie” outcome is more likely than a crash. Many people will feel forced to stay in their homes and pay off their huge mortgages, but that means they’ll have that much less money for other things. We’ll end up with a bunch of zombies as a result.
Invest it. – Speaking of HGTV, they always feature homes in Toronto. I always wonder what the heck people do for a living that are in the market for these homes that are $500-$700K. I mean I think our family makes pretty good money but I wouldn’t dream of having a mortgage that big.
Janette – I love that you lived a very practical life. It has got to offer so much freedom. Isn’t it strange how your approach is considered unconventional and it’s much more common to just get everything you want right away and then pay for it the rest of your life.
Molly, you know I have chicken and bee envy. The house doesn’t mean as much as the freedom to build your own little homestead and make a few bucks off it. Thanks for being an inspiration.
Money Reasons – since I went cross country in my car and backpacked through europe, I’m pretty sure having a van would be pretty cushy. It would really be fun to do that one summer when my kids get older.
Everyday Tips – I love HGTV too. It’s kind of like the morbid curiosity of watching an accident. You just can’t help but watch. My personal favorite is when a couple is already living in a 2000+ sqft/house and then they get pregnant and decide they need a bigger house to make room for their growing family.
Frugal Dad- I’m curious what your path would be if you were to do it over again. You seem to have things pretty well together.
Nicole – 4 years is nothing. congrats for being so close.
It could go another 12.3 if we stop prepaying (for a total of 16.3 years), so don’t congratulate us yet.
I love the change with the captcha code– it was killing me! On a regular basis because apparently I am incompetent.
Are you using “Conditional Captcha” now, Sandy?
Thanks for including my house plans page. I dream of building one of these someday; and yes – it’s a more unconventional path in some ways. But as for what I wouldn’t sacrifice, I’d have to say the neighborhood. I really don’t think I could live comfortably in a really bad neighborhood. However, the last time I checked the crime stats in my current neighborhood, I was shocked. There were way more burglaries and armed robberies than I thought. So maybe I’m already living in a bad neighborhood!
I love HGTV but then it also upsets me because of what you said – “unrealistic expectations.” I want to be able to decorate and rebuild but then I know that we never will be able to afford it.
I like the buy the land first and build it up. I would love to do something like that someday, preferably near a warm tropical beach. 🙂
Nicole and Invest it – Yup conditional captcha. I thought I had already took regular capctha off but I must have reinstalled it during an update by accident. Luckily someone told me about it. I can’t see it on my screen when I’m logged in as me. If anything is ever annoying or missing from my site, don’t be afraid to tell me.
Little House – I think safety is something on most people’s lists, that’s why 4000 sqft place in the hood is $90K. I love your plans page. It’s a great little spot to go and dream.
Aloysa – Yeah, I love the show to see what’s possible but I don’t love how it can make you feel. Like you’re behind in some way because you don’t have all this great stuff at age 24. It’s like looking at glamour and beating yourself up over not being 5’10” and a size 0.
Retire by 40 – the only bad part about that plan is having to deal with contractors. I think the process of building would be very frustrating.
Another thing to watch out for when buying land is getting utilities to your dream home – esp. Beware if it’s a big chunk of land in the country. don’t know about you, but I’m not willing to sacrifice electricity, running water and want more of a heat source than a wood burning stove! Personally, I like my 30 yr mortgage. We bought a house of 1/2 of what we were approved, so it’s affordable on 1 salary. Because of this, my husband was able to start his business W/o taking any business loans. I have an article i’mgoing to send you – it’s not all bad!
Sil – Good points. I don’t think my husband can live without high speed internet at home. Too big a gaming addiction. You are a real success story and your frugal ways certainly helped get you there. How much was your first fixer, $64K? I don’t think mortgages are bad. If I thought they were, I wouldn’t have 2 at the same time. It has enabled a lifestyle that would have taken way longer to get to. I’m a little less patient than Babci in that regard, plus my employ ability is a lot higher than hers was so I can take on more risks than she felt comfortable doing.
Same thing that my parents/grandparents went through in Poland, because as you point out–there was no such thing as “credit” until the last decade or two. People worked their entire lives to save up enough money, and once enough was ready, they built.
Sometimes, as was the case with one side of my family, it took three decades to build a home, and they’re still working on it! (Though it was livable after 3 or 4, of course!).
I want people to walk away from this article thinking that it is possible to be debt free because as you said, people did and still do it all the time.
You may not be able to jump into your dream lifestyle right out of college, but it certainly is a much more peaceful way of living knowing that no one can take the roof over your head away from you.
These are some great tips Sandy. I think that my favorite one of these was to buy a plot of land and move a mobile home onto it – I would love to have that much space! There is so much that I would be able to do with that land!
On the polish thing – that’s how my girlfriends grandparents did it – they were first generation americans from poland, and were deeply afraid of debt. So they bought the land, then dug the basement and lived in it, then built the first floor, living in it the whole time.
Living in a basement with no house over it..now that’s hard core.
I love your article and found it through Frugal Dad.
I have a mobile home I purchased right as I got married because I knew that if ANYTHING happened with our jobs I would be able to afford my house. I got a great deal on a used home and I moved it into a trailer park. Yes, I moved it into a trailer park, but it is cheaper than renting a decent, two bedroom apartment in a nice neighborhood. 🙂
Eventually I want to move it to land, but for now the lot rent is cheap, and I am close to school.
LB thanks for stopping by. Hope to see you back. Our town trailer park is actually sitting one of the two lakes in town. The lake front properties are going anywhere from $500K to $1.5MM around here. The trailer home folks are also living with lakefront access at a fraction of the cost. I think the reputation is undeserved in many areas.
I’m trying to get your B-I-L to post up his side of the story to play devil’s advocate, but I doubt I’ll be able to convince him. His article is entitled “Why I never rented”. We did rent/live for a summer down the Cape, but that was more of an extended vacation and we were 22 yrs old. We bought our 1st house at 23 yrs old. I wanted to rent b/c I couldn’t imagine I could ever afford to buy anything or qualify for a loan (this was before the irresponsible banking and you had to actually have a job, credit, and a downpayment). I don’t say it very often, but in this instance, I was wrong and my husband was right and I’m glad we did it his way 16+ years ago. Of course, every situation is different for everyone – but I think we can all agree that living within your means is always a good idea!
SIL – I’d love a post like that. Maybe I can pick his brain at Christmas. You two balance each other out pretty well I think.
We build our log home by buying land/materials with profits from the sale of a home we bought and remodeled. We lived in an airstream trailer while building it. It took about 6 months to get under cover enough to move in while we did finish work. We built it ourselves (meaning hands on with nails, felling trees, peeling logs, we only hired out the carpet laying cause we got a deal on it) We have no mortgage. Now we are selling it and moving to another state — and while we wait for it to sell, we bought 40 acres of mountain views and are in the process of building the tiny house of which you speak. We are doing the process all over again. Gladly. When this house sells we will move into the tiny house build a new big house, timberframe this time instead of log. Again, sans mortgage. There is nothing more satisfying than living in a home you built yourself with your bare hands and you own outright instead of the bank.
Okay, how romantic is the story you just told? I think people are doing the debt free thing all the time and just don’t realize it. I also think the pay as you go thinking makes you much more mindful of your spending and budget.
Wow I loved these stories!!! I have an aunt who builds her own homes from nearly scratch, I wish she’d contribute to this but she’s such a private person she never would.
I plan on buying a home next year. Originally I was all for saving up for a home in cash, but then I actually sat down and did the math. Even with very cheap rent, it would end up costing me $30K more! The way I figured this was to use a mortgage calculator with very realistic (low) extra payments on a 15 year mortgage based on our current living in a very expensive rental in the northeast versus buying a home in the south, in that our rent is equivalent or more than a mortgage down there. I then took the amount I’d still need (already have 20%+ down payment) and calculated how long I could save that by living in a cheap rental in the south. I then took those 60+ months of rent and levied that versus the interest I’d end up paying on a home. It was very shocking to see that the numbers weren’t even close. One could then point out all the associated home costs, but I would say those are still not going to close that gap much. The worst part is for all of that, I’d be living in a rental for five or more years (apartment too, not home)… I’ve had pretty good renting situations, but I am tired of sharing my living space with other apartments.
I know it’s often viewed as a really stupid thing to say, but for many people renting really is throwing money away… it may not apply to the coasts, but for the other 30 states it can be true if you sit down and do the math. My sister made me do this last year after I told her my original plan about just saving up the cash by renting a few more years. She said: “Or you could just buy a home and pay it off in that time.” Sometimes you gotta embrace a little debt in order to get started.
Gavin,
Thanks for writing. You are right, there is not one perfect answer. Part of the reason I wrote this post was to dispel the myth that there is only one way to buy a house (which is with a mortgage). Good luck on finding your dream home. I really enjoy mine.
My husband and I were able buy a house with cash in 2009. Yes it was the bottom of the market, but it was a goal for us. It required us moving to a State that’s housing market was really struggling (I grew up there so I was familiar with the area) and both my husband and I made career changes. But it has been wonderful. I love not making a mortgage payment each month. We were able to buy a foreclosure in an area we love. It was only 6 years old and in good shape. We had to rehab a bit, but we love it. The last house that we bought we built and it’s amazing how rehabbing a house makes it feel more your own than even one you built.
TG, yet another success story. Moving home to be near family is so wonderful, especially when you can do so by buying a house with cash. That time you spent away from them was well worth the investment, don’t you think? I did the same by moving my mom near me. I would have never been able to get as good a job if I limited myself to the 50 mile radius where I grew up. Now we are all together again and it’s great!
Good thoughts on doing the unconventional. We recently purchased a small home on about 9 acres in a “cash” sale, only partly financed by a 401K loan. By this time next year, the property will be paid off. Now, we still have a regular mortgage on our house in the ‘burbs, but that we may eventually sell off when the kids leave home, and move out to the country life full-time.
I am totally with you on the romantic dream of buying land and building my own house. My only problem is, I don’t know where I want to settle down! (Plus I only started my first full-time job a couple of months ago, so I don’t have enough cash to buy anything just yet, haha.)
So, I guess I’m renting for now… but one day! I want bees too.
Kellen – well, starting with a job and a dream are two important steps in the journey. Having wonderful dreams makes it so much easier to save money towards the goals of tomorrow vs spending it on fun for today.
Sandy, If you have a Wells Fargo mortgage, as I do, you should know that they have a credit card that pays a 1% reward directly to your mortgage balance. You can pay any recurring bills as well as purchases with this, and it adds up. Once it gets up to $25, they post it to your mortgage balance without your having to do anything at all. It’s nice.
Ardes – wells fargo was one of my mortgages, but thankfully, that particular loan is behind me, but this is a great tip. Hopefully other readers can benefit.
Buy what you can afford! Yes! That’s the way.
When we look at the housing crisis, it all boils down to poor lending decisions, and Americans who bought more than they could afford.
I recently bought a condo less than half what my previous condo cost.
It’s still nice. It’s in a safe neighborhood. And this time, I got a 15 year mortgage, which I plan to pay off before age 30.
I couldn’t quite pay cash for it, but I know that in a few years I will be completely debt-free!
Mike – we did the same, bought on much less than what we were told that we could “afford.” This helped greatly in our ability to pay extra on our mortgage and it also was a godsend when we needed to move my mom to town and needed to buy a second home. 15 year mortgages rock. We refinanced to a 15 with our first home after a few years.
I naively bought my first house in “need of TLC condition” at 22 years old knowing nothing about the lending/home buying process. I was making $9 an hour with a pregnant girlfriend; the monthly payment on the ARM loan for the 120k house was +/-$1,000. I was way unqualified for the loan but the great folks directly involved with the housing crisis were there to assist me anyway (literally forging documents and fabricating my income). My loan was immediately sold to someone else and then again within a year. For the next 4 years I couldn’t even catch a breath. Finally I was laid off and it was done. After looking for work for over a year with my wife working for minimum wage and me receiving unemployment just make ends meet, I got a job offer in Dallas, Tx (where I’m originally from) With the money from our tax return I moved down, got a cheap apartment, and told my wife to start getting ready to move (btw, we had twins during this period, so I now had three extra to account for). I am now making twice the money I was when I bought the first house and have just purchased a foreclosed HUD property for half of the principle amount of the other house. After all those years of stress and frustration with no light at the end of the tunnel, it is fantastic to be able to use all of the hard-lessons I was forced to learn to do it right this time. Fortunately, I had a family member who was a renter and therefor eligible for an FHA HUD loan who was willing to help me find something. I found a 3/2 brick home with a pool in a safe middle class suburb with a monthly payment of $720 (taxes + insurance included), and with all my monthly expenses leaving well over 1k a month for saving to pay down the principle, I plan to be debt free in about 5 years.
Great post! I love the out-of-the-box mortgage-free thinking. In my opinion, the American culture is too consumer focused. I grew up in a modest home and have been working since I was a teenager. I had the drive to work and started learning the value of money very young. I agree with the 1980’s menatlity of having at least 20% down in order to buy a home. I can’t believe some people were going into houses with 0% down. The real estate market was on “steroids” and people that couldn’t afford homes were approved for half a million dollar mortgages. Personally, I like the idea of having a strong downpayment and paying the remainder off within a short timeframe thereafter striving to live debt-free.
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