Buy a House without a Mortgage

by Sandy L on December 3, 2010

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:

  1. You start dreaming about owning a home.
  2. You figure out what features you want (2 car garage, hardwood floors, granite counters, etc).
  3. You start watching HGTV and get a grossly unrealistic expectation of what a normal American household can afford.
  4. You go online and find  mortgage calculator to see what kind of monthly payments you can squeeze out of your monthly budget.
  5. 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.
  6. Suddenly when you increase your price, you find the home you want and love.
  7. 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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