How to Pay for Your First House in Cash

Here's a piece from Fox Business that details how one couple purchased their first home with cash. I've selected the key nuggets of what helped them accomplish such an awesome feat and have highlighted them below:

We crunched a bunch of numbers and realized that, if we continued to live simply and frugally and worked hard to bring in extra money through side jobs, we could save enough over the course of five years to pay cash for a starter home.

We knew that we could buy a decent starter home in the area where we were planning to move for around $100,000 to $110,000, so we divided $100,000 by 60 (since there are sixty months in five years) and set a goal to save $1700 every month. Because we didn't have any debt or school loans, and because we lived simply and frugally, we were able to live on significantly less than we were making, thus freeing up a good chunk of money to put towards our house savings each month.

We used coupons, ate a lot of meatless meals, shopped at thrift stores, cooked from scratch, brown bagged it, continued to use our old and worn-down furniture, didn't replace anything that wasn't an absolute necessity, limited our going out to eat, only had one car, stayed home a lot, used gift cards from Swagbucks to buy any non-necessities, bought eye glasses from Zenni optical, learned to be content with what we had, and continued to live on a strict written budget.

Meanwhile, we also looked for ways to increase our income.

As our house savings fund increased, we began to get so excited that we kind of went overboard and worked long, long hours in order to meet our savings goal even faster. I wouldn't recommend putting in such long hours, missing so many social events, or sleeping so little, but the effort paid off because, at the end of two and a half years, we paid 100% down on our first home!

So let's summarize the keys here:

1. They spent less than they earned from the get-go.

2. From here, they tried to cut/limit spending as well as increase income, making their gap as large as possible. A key part of this was that they didn't have any school or other loans to hold them back.

3. They bought a house they could afford. Note that they didn't start out with a $500k house -- they bought a much more reasonably-priced one. This is a key step in my formula for buying a house you can pay off in 7-10 years. 

As most of you know, we paid off our mortgage early as well (just about 15 years ago now). We didn't wait to buy the home until we had all cash, but the methods we used were similar to those the couple above employed. We watched spending, grew income, and put almost every extra penny we had into getting out of debt.

We didn't get as crazy as they did at the end, but I do admit we moved our saving up several notches as we got closer to the goal. Somehow being close enough to see the end in sight motivated us more and more to get the mortgage paid off NOW!

The piece ends with the following:

Not having a mortgage payment has freed us to continue to save aggressively toward other goals, increase our spending in areas that really matter to us, and give generously to needs in our community and around the world.

We've found this to be true in our lives as well. Once you are completely debt free you are really FREE. You can substantially increase your savings AND giving and still have plenty left over to enjoy.

Comments

[Jonathan]

This is a good story, and it's admirable how focused they were on their goal of buying a house in cash. That said, I don't understand the purpose of that goal - they could have saved for one year, bought the house with 20% down (or more, as it sounds like they were saving much faster than they thought they could), and continued to live the same way while building up their equity rather than wasting money on rent. The house could have been paid off just as quickly, but they'd have had enjoyed it for longer.

[Susan]

That's so cool & Congratulations! I almost cried when they described how they did it.

[MC]

So Awesome!

[Rick Francis]

I have to agree with Jonathan, it is great to save up such a large amount, but it seems they could have done better with a mortgage.

Since loan rates are at historic lows, why not make a 20% down payment use a 15 year fixed mortgage at around 3% and invest the rest of the savings. I wonder if they sacrificed retirement savings during the 2.5 years they were intensely saving for their home?

-Rick Francis

[brooklyn money]

That amount to buy the house is a low-end down payment in my area. I know, FMF, I am doing it wrong, but I love my city and my family and couldn't imagine living anywhere else unless I had to.

[Michael Kwan]

Good luck trying to do that in Vancouver where the average price for a detached house is now over $1 million... so, using their formula, you'd have to save about $17,000 each month to buy the house in cash in five years.

[BD]

To be able to have $1,700 in extra cash per month is a feat in itself. For years, I haven't even made close to that amount per month, much less make that much EXTRA once basic bills were paid.

Well, I could probably realistically save around $50 a month now (maybe) after paying the most basic of bills (shelter & food).... $100,000 / $50 = 2,000 months / 12 = 166.67 years! If I saved for 166.67 years, I could afford that home. I think my first step needs to be to increase income. 0_o

[Steve Mertz]

Fabulous! Aside from a very cool accomplishment; I was very impressed by the method they went about planning and saving. It's scary that more individuals don't have a Process in place on how to save money!

[Mark]

One could argue that they should have gone with the 20% down and 15 year loan, but who can really fault them too much? Their goal only took 2.5 years, and now they can easily plow $1700 a month away for retirement (or maybe more since they don't have a rent/mortgage payment). Assuming the economy muddles along, they will be fine.

[SteveD]

I'd saved enough that I could have bought my first house with cash in 2010. Instead, for the same amount of cash, I bought three rental houses with mortgages and fixed them up. The rental income more than covers the mortgages and expenses (principal, interest, tax, insurance, and maintenance), earning me nearly $20k extra income last year (after expenses and taxes).

I understand the emotional value of not having a mortgage and being fully debt free, but I also think there can be good reasons to leverage debt. In my case, it enabled me to start three profitable businesses (with profits that only increase over time as rents go up and my interest payment goes down), plus I get 3x the appreciation than if I'd bought one house, plus I get additional tax benefits, plus I have a good hedge against inflation, plus they'll all be paid off in 28 years when I hit retirement age!

Still, it's a great and inspiring story about how to set goals and work to accomplish them. Thanks for posting!