How does someone pay cash for a house?

Can someone really pay cash for a house? That’s a pipe dream, right? I mean sure, if your daddy’s name is Hilton or Gates perhaps, but the average person can’t really do that.

Or can you? I encourage you to take 5 minutes to check out this video.

 

There are several things that really struck me in this video.

1. Commitment

Is it easy to pay cash for a house? Of course not. Easy is:

  • Going down to the bank and getting a loan. (Everybody does it.)
  • Buying a house that’s bigger than your parents’ house. (Of course, it took them many years to get that house.)
  • Borrowing as much as the bank will give you. (They wouldn’t give you the money if you couldn’t afford it, right?)
  • Spending most of your adult life struggling to make the mortgage payment, never really getting ahead, continually refinancing every few years to consolidate your debts as you try to keep your head above water.

That is pretty normal, but easy? Well, in retrospect, maybe not so much.

I think one of the keys for this couple is they had seen first hand the pain that debt can bring and the benefits of being debt free. Those experiences gave them the desire and motivation to choose to live a different way. They made a conscious decision that they would never have a mortgage.

2. Discipline and patience

That leads to the second point, which is paying cash for a house requires discipline and patience. Notice she talked about starting to save even when she was a teen? Guessing she probably had friends that had nicer cars than she did. Wonder if maybe there were some spring break trips she passed on in order to save? Eating supper at the cafeteria as opposed to getting a pizza delivered to her dorm room? I’m not saying you have to live like a monk and save every penny you make. Sure, you need to enjoy life some along the way. But I’m betting she had the discipline and patience to delay some of those pleasures in hopes of a greater good down the road.

3. Be ok with being weird

Unfortunately, in our society paying cash for a house is not normal. As Andy Andrews says if you want to be exceptional, you can’t do what everyone else is doing. If you do what is “normal” you are just contributing to the average. If you want to be great you have to think and behave differently than “normal” people

Paying cash probably means you don’t buy a house 30 seconds after you are married, or even sooner in some cases. Many people will put pressure on you to buy a house as soon as you’re on your own. Most of the time though there is nothing wrong with renting for a while as you work toward strengthening your financial position.

Just be aware that when you choose this path there will be many people who will not understand. Even some family members may think you are a little crazy. All I can say is when you write that check to pay cash for your home someday, you can just sing that Toby Keith song, “How Do You Like Me Now”.

4. Avoid entitlement

Notice when they showed up at the bank the first advice was, “You could use this as a down payment and get a much bigger house.” This is so tempting. Imagine how impressed your friends will be when they pull up to visit you in your new 5,000 square foot house. Never mind it’s twice the size of what you need and half the rooms are empty. So many people fall into this trap.

Our couple here knew what they needed. They saved intentionally and they purchased a home that was sufficient to meet their needs for several years to come.

5. Set priorities

The last thing that really struck me was her comment, “I”m driving an 18-year-old car with 1 working window and 200,000 miles but I don’t care because I’m going to Europe in 3 weeks.”

One of the keys to financial success is deciding for yourself what is really important. I think this is really what a budget is all about. A budget is purposely spending my money on paper so that I can make sure I am spending it on the things that really matter to me. For her driving a fancy car wasn’t really that important. Travel, having a paid for home, and eventually adopting were the things that mattered.

We all make choices everyday. Unfortunately, few of us can have everything we want. We have to make choices. Where will we place our focus? That’s where the budget comes in. The budget is not the task master that keeps us from doing what we want; it is the tool we use to prioritize our lives to make sure we can live our dreams.

Can you pay cash for a house?pay cash for a house

So is it really possible to pay cash for a house? A 2011 study by the National Association of Realtors showed that about 30% of home purchases were made with cash. So yes it can be done and a surprising number of people do it.

It isn’t easy. But then 30 years of payments and hundreds of thousands of dollars in interest isn’t easy either.

Imagine though what you could do if you never had a mortgage payment? What could you give? What could you save? How different would retirement look someday? What it would it feel like to lay your head down at night on a pillow in a home that was 100% paid for?

Do you think it is possible to pay cash for a house?

Photo credit: 401(k) 2013 (creative commons)

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5 thoughts on “How does someone pay cash for a house?

  1. Depends on where you live. The house prices are really outrageous relative to incomes in some areas (i.e. SF, DC, NYC, etc.) and it might require investing for 20+ years to do so. By that time, you’d be too old to start a family, etc. so it is to some degree understandable that people would borrow.
    On the other hand, why not just settle for downsized housing? You can live in a very small apartment while you save, and then pay cash for a condo, so that it only takes 6 or 7 years instead of 20. If you downsize enough and have a high-paying job, for the first few years you’ll just have to ignore that they have nicer cars, roomier housing, etc. BUT, you might just buy your place outright when your co-workers of the same age are complaining about the banks wanting them to have a 20% down payment!

    • Thanks for reading and commenting. I certainly agree that this is more difficult in some areas of the country. While saving to pay cash or even a 20% down payment can be difficult in these areas. Spending 30 years making a stifling mortgage payment can be very hard too.

      Great point on downsizing. Our homes should be a blessing but to often we we turn them into a curse with payments that become a ball and chain.

      Thanks again for contributing!

      • Great article! I do think its possible. My husband and I are getting ready to buy our 1st house with cash!! We are 30 years old with 2 babies and servers in hawaii. We lived way below our means for 5 years and while everyone else was going out partying we stayed in and saved. We r now moving our family back to Kansas and will be buying a $120k ranch home that will fit our needs. Our friends and families houses are 3 times the size of our but we don’t care. We have never been into keeping up with the jones.

        • Amy, that is so awesome. I’m so proud of you and your husband. You are going to be so much better off in the long run because you decided to make some short-term sacrifices. You guys are rock stars!!

          My wife and I went to Hawaii for our honeymoon. Spent most of our time on Maui but we did spend one day seeing the sites on Oahu. I love it there. One of the most beautiful places I have ever been. Hoping we get back there again some day.

          Congratulations again and thanks for sharing your story of encouragement.