An Example of How One Couple Paid Off Their Mortgage

I've detailed how we paid off our mortgage and I'm always thrilled when a reader reports that they have done the same. Today, here's a story of how one couple completed this financial milestone:

We did it – we paid off our house on 11 September 2009. We didn’t do it in any sort of a conventional way, and we were told by a LOT of people all along that we were “doing it wrong.” Yeah? What do they know?!

This is the VERY abbreviated story, but here’s how we did it.

In 2000 we moved from Phoenix, where had two high-paying jobs and a rented house, to Bozeman, where we bought a very modest house. Cost of living in Bozeman is pretty high and prevailing wages are pretty low, and that modest house was as much as we wanted to pay.

We decided before we moved to Bozeman that we eventually wanted to buy a lot and build a straw bale house and pay it off “as quickly as possible.” And when I say “we wanted to build” I mean that WE would do the building, not hire someone to do it for us – which is what people usually mean when they say “we’re building a house.”

Anyway, after a couple years we bought a 1-acre lot. It was a little more than we wanted to spend, but it was the best price we could get for something close enough to town. Then we sold our Bozeman house for a fair profit, moved into a camper, and started building on 18 May of 2004! We moved in to a VERY unfinished house that December, after the trailer was frozen solid (this is Montana, after all), and continued working on the place one room at a time. For a long time we lived in a messy construction zone, doing our best to keep the dust out of our clothes and our food. It was, shall we say, rustic living conditions! My wife cooked on a woodstove for nearly five months before I got the kitchen useable!

We didn’t have a construction loan because no bank wanted to finance a novice building a very unconventional house. (I’d never built anything bigger than furniture before I started building the house!) I’m an engineer, it’s in my DNA, and I was an electrician in college, so I’m pretty handy with stuff and I can figure out how to do things. And I printed a quote, I think from Henry Ford, and posted it on the construction site: “Whether you think you can or think you can’t, you’re right.” I live by that philosophy to this day.

We built the house using cash from our full-time jobs, and also (are you ready?) credit cards!! In 2004 money was CHEAP, so we got 0% cards and ran ‘em up. I have stellar credit, so even when the 0% ran out I still had very low rates, and I could rotate the balances to new 0% cards.

The only work I hired was the concrete slab foundation. We did EVERYTHING else ourselves, which saved a tremendous amount of money.

After about 1-1/2 years we got a bank to give us a debt consolidation loan –NOT a mortgage because they couldn’t get an appraisal on a straw bale house. The total loan amount was about $70k, and it was a five-year balloon loan. Since we had such a hard time getting even that loan we decided that we didn’t want to try to refinance when the loan was due, so we decided we’d do our darndest to pay off the whole thing!

The math works out to only $14000 per year, or about $1200 per month. I think most people pay more than that for a conventional mortgage. The difference is that our loan amount was so small to begin with because we invested so much of our TIME to make it happen.

We make pretty good wages for this area, but we’ve lived frugally ever since we started building. We’re not deprived: we travel to Europe every few years to visit my parents, partake in our hobbies, invest a little in the 401ks and Roth IRAs, and we still put a lot more money into building the house and yard.

Now that the house is paid off we’re socking away a TON of money into the 401ks and Roths. We need to make up some lost time there, but since we’re only in our late 30’s we still have a lot of time to save. And since we don’t have a house payment (!!!) we don’t need so much money for retirement anyway.

There’s more than one way to pay off a house. We took a pretty difficult route, but we now have a comfortable and beautiful (and still not finished!) house and NO DEBT.

No doubt that this method is a bit unconventional (it's like being your own house contractor on steroids) but they followed the basics of my formula for buying a house and now they have no debt at all. Good for them!

I like that they are keeping expenses low and socking away a lot of money -- they do need to make up for lost time. FYI, I don't recommend paying off your mortgage if it means stopping your long-term sayings because time invested is the single-most important factor in the performance of your investments, and once it is lost, you really have to save a ton to catch up. It appears that they'll be able to do this and given the market, they probably did better by being out of it for the past several years (otherwise they might have lost money), so maybe timing is working in their favor.

Comments

[Sherry H; Washington State]

This is great if you can do it. But as a municipal employee working in the building permit division, this would never be allowed in our city, or in many areas. Simply put, you cannot live in a trailer/RV within city limits, and you cannot occupy a dwelling that is not finished, issued a "Certificate to Occupy" under today's building codes. Makes a great story, but not at all feasible. The citations,fines,court fees would definitely shut this operation down.

[Jim]

This story is very similar to what my Dad did. He bought land and then built a house himself while he and my mother lived in a trailer. Then they moved into the house as soon as it was habitable. Its a great way to go if you can do it, but definitely not feasible for most people given the amount of construction expertise required.

[Ellen]

This is an interesting story. Props to this couple for roughing it and really making some sacrifices to live a life debt-free and still fulfill their dreams.

[Phil]

We paid off our morgage in 4 years. We bought in 1980. Interest rates were sky high. The best we could do was a 12 percent loan. We put down a 20 % down payment. Then every month we would pay the interest and then put as much money as we could toward the principal. I've not had to make a morgage payment since then. Its one bill I haven't had for years.

[Ella]

Very unconventional! I assume they were not raising children in the camper or half finished house, but I could be wrong!

[Josh]

Although I find this article very fascinating, it's not very practical to people who read this blog. I'm an engineer myself, recently graduated. Even with my engineering background in structures, design, and HVAC - i don't think a person can build a house from the scratch. This is one of very RARE case. Not to mention, the quality of living sucked during the time of building. I'm happy for you that you have successfully finished and living in your product - but not something people can learn from.

[basicmoneytips]

It is an interesting story but I that does sound like a painstaking route.

I have a relative who made a small fortune moving in houses, fixing them up (mostly updating) and staying 2-3 years and moving. No capital gains tax, did most of the work himself. Each time he rolled the gains into the next house. After about 5 he had a paid for house.

However, this was before the real estate crash, but it was still an effective way to pay off a house. You have to be handy and also have a good eye for houses.

[Craig]

While this is an interesting story, the typical American has 2 or 3 kids. Try building and paying off your house while having 2 or 3 kids. At that point, they'll deserve the Medal of Honor.

[JerryB]

Kudos to the OP, sometimes an unconventional approach is the the best.
Back in the early '70s my parents were raising 4 kids and built the house my mom currently lives in from the ground up. Like the poster, the only thing hired out was the foundation. Framing, electric and plumbing were all done by my dad, a few of his buddies from work, my mom and the four of us kids. I was 10, my oldest brother was 14 at the time. We were all given tasks that we could handle. I did a lot of sweeping up and fetching something cool to drink. Like them, my mom did a lot of cooking on a wood stove and yes we camped out many times in the unfinished house.
Unlike the poster, my parents were able to get a loan because it was a traditional frame house.

[Financial Samurai]

Just wondering about the below quote. Does that mean they could not max out their 401K during their mortgage debt period? Because if so, that's $16,500 X their federal tax rate + matching in lost income.

I'd always max out the 401K first! Free money is free money!

"Now that the house is paid off we’re socking away a TON of money into the 401ks and Roths. We need to make up some lost time there, but since we’re only in our late 30’s we still have a lot of time to save. And since we don’t have a house payment (!!!) we don’t need so much money for retirement anyway."

[Param]

I think overall it helps if you treat house/home as a expense & thus do all you can to reduce costs (just like in grocery shopping). Treating it as an investment or get-rich-quick idea makes you go overboard & repent later...

[Eugene Krabs]

This is such a wonderful story! I'm really glad that it's worked out for them....

Although, and I really do hate that I can be like a curmudgeon sometimes, but $70k can go a long way towards getting into a house where I live. Certainly, it would not be anything as customized as theirs and would cost even more, but....

The only real thing I got out of that and fully agree with was that they lived frugally (roughed it) in order to finance their project and build their dream home. However, while the path they took to build the house was indeed unconventional, I don't think there was anything really unconventional about the way they financed it. Given the situation, the financial path was still perilous, but it was their only choice anyway. So, I'm just glad all that worked out.

I don't know. Not everyone is handy and not everyone wants to build their own house, so this isn't a path that everyone can take or even want to take. That said though, I am happy for them!

[Bill]

The added bonus here is that they built a hay bale house. The walls on those things are like 2 feet of pure insulation. The energy costs for a house in Colorado that I saw was essentailly zero since they could heat with one small woodstove. I'll bet their heating costs are similarly low.

The windows also all have really nice big window seats because of the wall thickness. Nice house.

PS many places will let you live in a trailer while the house is under construction...just need a permit. Oh, and doing the work by yourself? That is not difficult; any handy person can do it...it mostly just takes time and patience (and Henry Ford's quote).