Buying a House Without a Loan
By Steve Gillman - 2012
Is buying a house without a loan possible? Of course it is!
Almost half of the recent home sales in southern Florida (as
of early 2012) have been for cash. Now, these are mostly sales
to investors, but if they can save the money for a purchase,
so can others.
Buying without a loan is appealing for a couple reasons. You
don't have the monthly expense of the payments for starters.
You also don't have to worry about losing the home to the bank
if you get into a a bit of financial trouble. But can you
buy a home without a mortgage? You night be able to if you think
and act long-term.
Start Saving
The first and obvious step is to start saving for your future
home purchase. In the past this was a difficult strategy to make
work, because home prices may have been rising faster than your
savings. This isn't likely to be true at the moment (2011) while
prices are actually still falling.
Many people think they don't have enough income to save for
a home. This why a few years ago so many were happy to get those
zero-down loans to buy their first home. But at the time the
cost of buying in many areas was hundreds of dollars more per
month than renting. That means that if a person could afford
to buy the same person could have chosen to rent and set aside
the difference.
For example, when we lived in Tucson, Arizona in from 2004
to 2006, rents were very low. In fact, a home that rented for
$700 per month would often cost $1,500 per month to buy. Had
you been able to buy, you also were able to rent instead and
set aside $800 per month. A good plan, as it turns out, since
you could now buy the same homes for as much as 40% less.
But even if the costs of rent is similar to buying, you can
live in a smaller place now and set aside money. There were nice
one-bedroom apartments in Tucson in 2005 for $475 per month,
which included all utilities. Wherever you are there are likely
to be cheaper places to rent that will allow you to set aside
some money every month for your future home.
Start Small and Buy Smart
Now, it is clear that it would take a long time to save enough
money to buy a home for cash. In the Tucson example, at $800
per month, it would take at least fifteen years to save enough
to buy that house that rented for $700 - and that is based on
getting some return on your money and the house having fallen
in price. So is there a quicker way?
There is if you are willing to plan well, shop smart and live
modestly to start. Let's look at an example of the steps you
might take.
You rent the cheapest apartment you can find for four years.
If you are single you might even consider renting a room to really
cut your costs. This, along with other cost cutting, allows you
to set aside about $550 per month, so you have about $28,000
(with interest) after four years.
Now you start shopping for a cheap mobile home on land. If
you have to you move to another city where this is possible for
under $30,000. Unlike in a park, a mobile home on property appreciates
in value, and you won't have to pay lot rent either. The idea
here is to buy your own place at a low price, so take your time
(and keep saving while you look).
Now, with no payments and no rent you have low-cost living.
Mobiles are cheap to maintain. Your other costs are property
taxes, insurance, and utilities. Altogether you should be paying
out less than you were in rent. That means you can boost your
savings from $550 per month to perhaps $700. Rent a room out
for $300 per month (I got that easily in my mobile home when
I was younger), and you can add that to the savings if you like.
A few years down the road you look for the next step up. By
selling your mobile home and using the additional savings you
might buy a small home that needs a bit of work. Buy cheap again
so you essentially have an immediate increase in your assets.
Buying a house without a loan is possible in this way, and you
can upgrade your lifestyle over the years.
The key is to always rent or buy less than you can afford,
so you are able to set aside money for the next home. In this
way (and with smart shopping and negotiating) you can continue
to move up without going into debt.
Another Way to Buy a Home Without a Loan
There is another strategy that some home owners have been
using to avoid financing. It is to cash in the equity you have
in your existing home and look for a cheaper place to live. Even
after the big drop in prices in California, for example, if you
have been paying on a mortgage loan for decades you might be
able to net $100,000 after selling and paying off the lender.
That will buy a nice condo in Florida at the moment--no loan
needed (and you get to stop paying state income tax as well).
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