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Who Says You Can’t Pay Cash for a House?

by Shawanda Greene

Affordable home - you can pay cash for a house

My commitment to money grubbing is boiled down to a very simple concept – I don’t like being told what to do.

You probably can’t tell from my writings, but when provoked, I sometimes lose my temper.

Fortunately, I’ve never popped a neck vein after a heated discussion with a supervisor. However, there were times I’ve come terrifyingly close to putting my foot up somebody’s rump. Of course, that’s no way for a professional to behave. So, I abstain from violence.

But the thought of being self reliant won’t leave me.

Ya never know when you’ll be all alone with no one to fend for you but yourself.

One of the biggest risks to personal freedom is debt. It ties up our future earnings. It convinces us we should stay in jobs we hate, in relationships with people we hate. It makes us kiss butts we should kick.

I’m telling you. Debt stinks.

Since becoming debt free in late 2008, I feel so, you know, FREE. I don’t wanna borrow money – for any reason.*

When it comes to housing, you can rent it, buy it, bop it, or twist it. As long as there’s a way to obtain shelter that protects your face from ice cold rain drops, it doesn’t matter. Currently, I’ve chosen to rent.

As indicated by the title, I’ve been kicking around the idea of, eventually, buying a home with my own money.

That’s kuh-razy. I know.

Many believe saving up a 100% down payment is impossible.

Well, I’ve got a 4-step plan for buying a house with cash. Although I must warn you, it’s not for the meek.

Make a lot of money

What?

You thought I’d unveil a strategy that allows you to pay cash for a house making $20,000 a year. Grasshopper, you want too much. I’m not a magician.

In 2010, the median household income in the United States was $49,455. Now, I don’t have exact figures, but those of us on the 100% down plan need to be somewhere, roughly, uh, let’s say, far north of that.

A lot of people are reluctant to relocate, but you could work in an an area where wages are higher than average and live cheaply.

Spend as little as possible


Although there are countless ways to save money, I’ll limit this discussion to two biggies.

Live with roommates. I did it for two years when I moved to the DC area: one year just for hoohahs and another year to get out of debt.

If you’re currently living with parents, unless they’re driving you nuts, consider staying put until you save up enough money to pay cash for a house.

Avoid lifestyle inflation. When your income increases, taxes are the only expenses that should go up. Every other expense stays the same.

For a clear view of how cutting certain costs will save you money, check out Bill.com’s My Savings Machine.

Ways to Save Money - Bill.com My Money Machine

Save longer

This isn’t one of those wussy plans where you borrow a $500 down payment and have the government subsidize your mortgage interest for the next 100 years.

Let’s get one thing straight. I do NOT advocate you skip retirement investing while saving up to pay cash for a house.

Patience is key. If you’re diverting 15% of your income to retirement accounts, you’ll likely be at this for years. Embrace it.

Dream smaller

Lower your standards when it comes to both size and location.

If you have 5 kids under the age of 12 and are currently expecting twins, unless you’re really crushing it on step 1, this might be tough. Don’t blame me; I ain’t tell you to have so many babies.

I’d love to live in a gorgeous, 3-story, row house in Logan Circle. But buying in an expensive area like that is quite difficult for a first-time home buyer. According to Realtor.org, Washington, D.C.’s median single family home price is about $341K. Homes in Logan Circle are easily twice that much. Whereas, the median price of a single family home in Orlando, FL is only $128K.

Keep in mind that median is the middle. Half the homes cost more. Half cost less.

You could go even further by purchasing a home that’s 75% of the median home price in Orlando, FL. That’s only about $96K.

Don’t forget. Because you’re paying cash, you won’t pay loan origination fees, points, and all that other foolishness borrowers owe at closing. AND you have a much better chance of stealing a house from a desperate motivated seller when you’re a cash buyer.

Illustration

The following scenario assumes annual savings and home prices will increase 1% and 3%, respectively. Retirement savings are based on 15% of your after tax income.

Annual savings allotted for cash home purchase

Savings needed for cash home purchase

*Okay, I do use credit cards for convenience, security, and discounts. It doesn’t count when you pay your balances off in full every month.

Photo by Alison and Orlando Masis

Have you ever considered paying cash for a house? How would you save up enough money?


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{ 42 comments… read them below or add one }

FabulouslyBroke.com November 22, 2011 at 10:05 AM

I loathe debt. Ever since getting out of $60k of student debt, I do NOT want to get into any kind of lease, loan or mortgage for anything like a house or a car. Seriously, I can live without a house, and I can always get around on a very cheap car. I don't need the best, if it means I have to fork over $500+ of my money per month to something I couldn't buy in full.

Cash for everything –> my motto. I don't have the cash, I don't buy it.

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Shawanda November 22, 2011 at 7:51 PM

I know what you mean. Debt makes me anxious. When you have to climb your way out of a bunch of debt, perhaps you're more reluctant to go running back into it.

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kim November 22, 2011 at 1:43 PM

"D.C.’s median single family home price is about $341K. " That has GOT to include condos. Got to – what house in the DC area costs $300k? I can't think of any….save a condo. In Arlington the cheapest house is $350k, and is is 2BR 1 bath. We decided make our money here (we're in DC in case you haven't guessed), and then moving to a cheaper area in about 10-15 years and buying a house in cash. Here's a fun fact – VA loans typically go to $417k. Anything above that is a jumbo loan – and there are no adjustments for locality. To me the word 'jumbo' sounds like you're buying more than you need – although that's the standard price in DC.

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Shawanda November 22, 2011 at 2:01 PM

I think you have a great plan.

I should update that to say the "metro D.C. area" because the National Association of REALTORS includes Northern VA, parts of MD and even parts of WV (not sure why) in the calculation. The $341K is for single family homes so it's the suburbs dragging down the median price. The median home price for condos around here is $241K.

You can still find a decent town home in Petworth for about $350K. It's a little rough around the edges, but I think the neighborhood is transitioning well. I actually live in Arlington, and it's not much cheaper than DC. The homes in my neighborhood are upwards of $650K. I could get more space if I bought a condo, but the price differential between renting and owning is simply too great to justify buying.

Here are my sources if you're interested.

Condos: http://ow.ly/7BZpY
Single Family Homes: http://ow.ly/7BZsU

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@barbfriedberg November 22, 2011 at 9:30 PM

Shawanda, I love this post. In some parts of the country, housing is really cheap, and condos cheaper. It is not unreasonable to shoot for paying cash for a home. You can do it!!!!

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Shawanda November 27, 2011 at 3:11 PM

Thanks! Although condos scare me, there are plenty of affordable home ownership options in many parts of the country.

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@financialsamura November 22, 2011 at 9:32 PM

With rates so low, I'm kinda going the OPPOSITE route and seriously thinking about doing a cash-out refinance per my latest post. I still have another chance. So juicy all this "free money"!

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Shawanda November 27, 2011 at 3:15 PM

:) Fewer people are choosing that option these days, but it's a valid source of cash for many. I hope those who choose it have something worthwhile to do with it and aren't already thinly capitalized, i.e., broke.

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20's Finances November 23, 2011 at 9:09 AM

I'm tempted – primarily for a rental property. I would love to buy a rental property out right. This would almost guarantee positive cash flow. Still not sure. With rates so low, it might be better to leverage my money and buy two homes at once, take out a loan for half and be better off. It's tough..

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Shawanda November 27, 2011 at 3:23 PM

With mortgage interest rates like these, the decision to pay cash for a house is more qualitative than anything. Even if you can afford to pay 100% upfront, you still have to consider the opportunity cost of tying up so much cash. Real estate is an awesome investment for some. For others, they're better off investing their money else where or spreading it more widely over non-real property.

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Well Heeled Blog November 23, 2011 at 12:27 PM

Well if I win the mega lotto, I can probably use $300K of that and buy a house in certain parts of the country. Otherwise, I'm all for using the power of borrowing money responsibly.

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Shawanda November 27, 2011 at 3:29 PM

When I think about buying a house in a high cost of living area, like the one I currently live in, I immediately start calculating the price differential and what I can do with that extra money. For instance, it'd probably cost an extra $400-$500K to buy in my area compared to one that's more reasonably priced. Is it worth? And those are just the raw numbers. They don't include the unholy amount of interest you pay for the privilege of paying off a mortgage over 30 years.

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Hazel November 23, 2011 at 3:56 PM

I have paid cash for a house. Twice. The first was $350,000 and the second was $600,000. Luckily I had stock options to use. The first house is now worth about $1.7 million and the second is worth about $600,000. (I still own both. The more valuable house is my summer house, which is in a town that rocketed in value. The second house, where I live most of the time, went up, but now is about where I bought it in 2000.)

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Shawanda November 27, 2011 at 3:32 PM

Whoa! $350K? $600K? That's a lot of money. The question we should ask you is, what'd you do to earn so much money? I don't need specifics just general tips, tricks, and trinkets of wisdom that we can duplicate. :)

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Hazel December 5, 2011 at 1:00 PM

Uh, work in the tech industry in the 1990s? Sorry, that's the best I can offer.

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JP @ Novel Investor November 23, 2011 at 9:38 PM

I've definitely though about it. But am far from making it a reality. It would take a lot more income and spending sacrifice for the amount of house I want.

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Shawanda November 27, 2011 at 3:33 PM

Dream smaller!

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Ally November 25, 2011 at 10:03 PM

Around here (southern Minnesota), you can pick up a fixer-upper for $25-30,000. Most of them just need cosmetic work. As soon as I pay off my car loan, I'm going to start saving for one. I'm hoping to have my own house, paid in cash, in 1-2 years.

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Shawanda November 27, 2011 at 3:34 PM

That'd be pretty sweet, wouldn't it?! In my hometown of Jacksonville, FL, homes are really cheap. I could pay cash for a house right now, but I'll pass. I'm going to work on getting the income hope so that I can dream a little bigger.

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@101centavos November 27, 2011 at 11:11 AM

Well, I'm not going to be the one that says you can't pay cash for a house. I've done it. Twice.

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Shawanda November 27, 2011 at 3:35 PM

I'm trying to join that club!

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Camille November 27, 2011 at 6:23 PM

Good luck with your goal Shawanda! I know my parents always spoke admiringly of their friends who had bought a house for cash, too! They always used cash as a bargaining chip to get a better price on a house… probably because "motivated sellers" might like the money as soon as possible.

Keep us up to date on your journey!

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Shawanda November 30, 2011 at 7:34 PM

Thanks! The interesting thing is that a full one-third of Americans own their home outright. Granted, they paid for it over decades, but still.

If you're desperately trying to get rid of a home, you probably don't want to wait 30 to 60 days for the mortgage company and the buyer to get their act together so that you can get paid. When it comes to motivated sellers, "A bird in the hand, is better than two in the bush." Or so I've heard.

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My University Money November 28, 2011 at 9:59 PM

Interesting goal. I love the line, "I ain't tell ya to have so many babies." HAHA! With such low mortgage rates I didn't mind taking out the money, but I am paying down my mortgage as quickly as possible. Right now my significant other has 2 years of school left, but as a public school teacher in Canada I make more than the median income by myself (around 55K in my second year) and we live rural so that is exactly the situation you were describing. When she begins work as a teacher I think we'll have our mortgage paid down in 3 years or so (5 from now) and own our house outright before we are 30. I think this will help our long term savings rates substantially.

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Shawanda November 30, 2011 at 7:38 PM

Haha! Well, I didn't tell 'them" to have so many babies.

Having a paid for house before the age of 30 is just brilliant if you can swing it. Afterwards, think of all the money you'll have free to invest, spend, give, whatever. Doesn't matter. It's yours.

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Homefree November 29, 2011 at 1:15 AM

Houses would not be so expensive if the interest rates weren't so low. It is what caused the bubble. So 20 years ago we bought a house at 8% interest and the mortgage payment was a little over the rent we were paying at the time. That is still true today, I could buy a house with a payment that is a little over the rental cost of a similar house. The difference between the past is I bought the house for $85,000, today the house would be purchased for 250,000. It was much easier to pay back 85,000 than 250,000. I would not buy a house today because I would not to put $250,000 on the sidelines. Houses do not produce income, as a general rule, so the only possibility on return on investment is a great selling price. Im not against home ownership, but it's not an investment, it's a place of stability, comfort, to raise your family, all wonderful things. If everyone saved up to pay cash for their houses the price of housing would be very different than it is today. So keep on saving, the moment interest rates go up housing prices will go down and you will be ready with cash to by the house of your dreams for all the right reasons for owning a house.

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Shawanda November 30, 2011 at 7:46 PM

I was just having a conversation like this with a coworker a few weeks ago.

Extreme savers are the ones hurt most by low mortgage interest rates. If interest rates were higher, as you mentioned, home prices would be lower. It'd be soooo much easier to pay cash for a house. As we have it today, the prices are higher because interest rates are low. This scenario hurts cash buyers. What do they care what mortgage rates are if they're not borrowing money?

In expensive areas like the one I live in, the difference between what it costs to buy and what it costs to rent is ridiculous. I'll happily sit on the sidelines for now and bank my excess cash.

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Evan November 29, 2011 at 11:57 AM

I am from Long Island and my next house purchase is going to be in the 500K range so paying cash just seems completely out the question. I do dream of putting a stupidly large down payment (30%+) and that is what The Wife and I have been saving up for recently.

The longer it takes us to sell our current home the larger the down payment will be on the next one!

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Shawanda November 30, 2011 at 7:49 PM

A stupidly large down payment you say? Let me grab my calculator. That's at least $150K! An entire house in many areas!

Assuming there's equity in your current home, at least you're not starting from zero.

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cashisgreen December 6, 2011 at 12:46 PM

paying cash for a house makes sense in very few situations. Just imagine if you had paid cash for a house in Cleveland or Detroit. It would have been money down the drain.

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Shawanda December 6, 2011 at 1:01 PM

So, we should carry a mortgage to avoid assuming any downside risk should our "investment" decision prove to be unwise? The home declines in value and we walk away?

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annie January 4, 2012 at 8:47 PM

Yes, you can pay cash for a house. In fact, I paid cash (and even traded furniture) toward the last mobile home I owned.

I know people who have paid less than $20,000 for small older homes in reasonable shape. A young man I know in the past 5 years bought a home and a couple acres for less than $10,000. I've seen several on sale for $15,000 and in Detroit they are selling for less than $5,000 in some areas. You just have to know where to look and have the money ready when you do.

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Penny Stock Blog January 26, 2012 at 8:38 PM

its a great time to buy a home simply because their are so many places in the country where home prices have become attractive. Thirty year fixed rate mortgage rates are now under four percent. I can remember years back when housing was king long before the housing bust. Everybody had the expection that home prices would always increase. Even myself as far as that go's almost believed in this fairy tale. And it was just that a fairy tale as long as it lasted. I don't have the data in front of me but I think their was only one or two years from 1945 to the early 2000's that national home prices declined. Their were pockets of weakness in texas during the oil bust of the 1980's but over all prices increased steadly from 1945 to about 2006. One giant bubble

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Steph July 31, 2012 at 4:09 PM

Shawanda, you have inspired me! I was saving for a down payment on a condo, but now I’m thinkin’… why not save up for the whole thing? Avoid that unnerving monthly payment! The areas I’m looking are affordable enough that I just might be able to do it! It would be a lot less stressful come purchase time.

Thanks for writing this! :)

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Alisha September 28, 2012 at 2:07 PM

My husband and I are approaching a unique position. He is leaving the military and we get to chose where we land. We have chosen an area where housing prices are rock bottom! If you don’t have to worry about getting to a specific job you can always move to a place where cash goes further! We have very lofty savings goals over the next year. Any creative ideas on where to save money are certainly appreciated!

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QUALITY STOCKS UNDER FIVE DOLLARS December 21, 2012 at 4:22 PM

I do not think thats its a very wise decision to pay cash for a house when interest rates on home mortgages are just 3.5 percent.

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Liz June 13, 2013 at 2:24 PM

Thanks for this! The hubs and I are saving cash for a house and this was great motivation. Sometimes it feels like it is a long road but I know it will be worth it!

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NeverGiveUp February 7, 2014 at 9:26 AM

Daughter tried to purchase house in florida for mother under home buying program for parents. Daughter qualifies but does not qualify if you know what I mean. We had saved downpayment & closing costs. Mother’s pension + daughters income planned to pay down mortgage in 10 years. We took the run around & mortgage denial as a spiritual sign. Now we are saving for cash purchase in 3 years. Plus setting aside money in daughters retirement 401k.

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luis e May 6, 2014 at 1:06 PM

not only is having debt a pain in the you know what, the idea of paying double for a home is just absurd. i.e a 150k home with a 30 yr mortgage would end up costing you lose to 300k when is all said and done. if you were to put 150k in a savings you would total 192k. the mortgage companies play us and make stupid amounts of money on us. average home appreciation values are at 1.5% .

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