The biggest home in my town is currently in the process of being built. It is set on 3-4 acres of one of the best pieces of property in the town, with a beautiful view of a river and of Canada. As you can see by the picture, this home will be quite spectacular when it is finally complete.
The only issue with this home, is that it has been under construction for about 4 years, which means that the owners have probably invested over three million dollars into the property without actually being able to live in it. As I have watched this home get constructed, I was always puzzled at the slow pace. I wondered why it took 4 years or so to build, when other (much smaller) homes were built in under one year.
Fortunately, a recent conversation with a friend of mine clarified why this home is taking so long to build. He told me that the owners are building it with cash instead of taking out a mortgage or a construction loan to help build it. This means that they must have the money to pay for each part of the home before it is built and that they must stop or slow down if they run out of money.
Without knowing for sure, I assume that the owners of this home have also exceeded their budget, and are now faced with cost overruns, which have slowed down the pace of construction. Or, maybe instead of cost overruns, they had financial changes with the business that they own.
Either way, after finding out that the owners are building the home with cash, I began to think about if building or buying a home with cash is a good idea.
The Good
Of course, the good thing about paying cash for a home, is that this would eliminate any mortgage payments, which are such a huge weight for most people. Not only can it take up to 30 years to pay off a mortgage, but many people get a new mortgage every time they purchase a new home. This means that many families may never pay off their mortgages, especially if they move every few years. Just like getting our first car lease and then never getting out of the cycle of leasing cars, a mortgage on a home may mean that many people will never get out of the cycle of having mortgage debt.
However, if someone is able to pay for a home with cash, then they will break the cycle of having debt on their homes. This will probably mean that they can get out of debt and stay out of debt forever.
The Bad
On the other hand, you and I know that it is very difficult to pay for a home with cash. A home is very expensive, and it is difficult to save up $100,000 or more to pay cash for it.
Depending on the cost of the home, it can easily take 7-10 years, or even longer, to save up the cash to pay for it. With my philosophy of Life Before Budget, I struggle with waiting 7-10 years to do something that I really want to do, strictly because of the cost of it.
A Better Way
Instead of taking out a 30-year mortgage that we never really pay off or waiting 7-10 years to finally save up the cash to buy a home, there are a lot of better options.
One good option is trying to find a home that fairly inexpensive. This could allow us to save up enough cash to pay for it in only 3-4 years. There are many places in the world where we would be able to find a home for $50,000 or $75,000. If we save up $20,000 or more per year, then we will be able to purchase this home for cash in only 3 years. This may not be the nicest home in the world, but we can either fix it up to make it nicer and stay in it for a while or fix it up with the thoughts of selling it in a couple of years. This could allow us to make a profit on this home, which will allow us to pay cash for the next one.
Another option is to get a 7-15 year mortgage on a home. If we do this, we must make sure that we put at least 20% down to avoid private mortgage insurance (PMI). Getting a shorter mortgage ensures us that we will actually be out of mortgage debt within this time period instead of having a mortgage on a home for 30 years or more.
So … while I would love to say that paying cash for a home is the only option, I know that I don’t want to delay my Life, just so that I can meet my Budget. Fortunately, if we get a short-term mortgage on our home instead of a 30-year mortgage, we can see the benefits of paying cash for a home, without waiting 7-10 years to buy one.
Are you looking to buy a home? Have you thought about how you can avoid having a mortgage for 30 years or more? Or, do you have any tips for those who are looking to buy soon? Please let us know in the comments.
And thanks for reading!
~Nathan
Let’s keep living a great life … with the help of money. So what’s next?
- You can travel for free by using rewards credit cards.
- You can get motivated and get out of debt.
- You can check out the next post or the previous post and continue to learn.
But no matter what you decide to do, let’s leave the ordinary behind and take action today!
