I think you’ll agree with me that making a house payment each month sucks.
About 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. Here is an example of how one could actually make this a reality.
How a couple can buy 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 couples story is crazy, check out people that are living on even 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.
Why should you pay cash for a home?
It may seem crazy to save up cash to buy a home without a mortgage. However, have you ever thought about the total interest that you would pay if you took out a 30-year mortgage? Well, if you borrowed $250,000 at 4% interest on a 30-year note, you would pay $179, 673 in interest! That is $10,000 per year for roughly 18 years in interest. I don’t know about you, but I would rather backpack Europe every year for 18 years than pay a bank that much interest.
Well, that is great but I already have a mortgage. What should I do?
Don’t worry, I have you covered. Check out the mortgage calculator below to see what your savings would be if you had a shorter term.
Would you like to have a paid-for home someday? Would you consider buying a house without getting a mortgage?
Refinance Your Student Loans or Credit Card Debt
With the average credit card interest rate around 15%, this could save you a ton of money over the long haul. SoFi will refinance your credit card debt to as low as 5.99% so that you can pay your debt off even faster. Use this link to get $100 cash back if you get approved. They also refinance student loans to as low as 2.355% APR.