How to Buy a Home in Cash With No Mortgage

buy a homeA record 33 percent of all home buyers in the U.S. pay in cash, according to the National Association of Realtors. How do these people come up with the loot to buy a home – often in the hundreds of thousands of dollars – without a bank loan?

Well, some of them are investors and wealthy individuals with big chunks of money at their disposal. Others are foreigners capitalizing on weakness in the U.S. real estate market. But most of them are move-up buyers able to take money from the sale of a previously-owned home and pay for a new house in cash, without a mortgage.

But what about first-time buyers and others lacking deep pockets?

If you're a renter hoping to make the leap to homeownership, or even a would-be repeat homebuyer, rest assured that it is possible to buy a home with cash. It just takes hard work, strategizing, and yes, some serious sacrifice. Part of the sacrifice may mean working lots of overtime, being willing to scrimp and save for years, or just being open to the idea that your "dream" home could be a cute, more modestly priced two or three-bedroom house as opposed to a more extravagant, expensive four or five-bedroom McMansion.

And lest you think that all that effort and sacrificing couldn't possibly be worth it, consider the benefits of buying a home with cash.

• You can avoid having to jump through the strict lending standards banks are requiring (everything from having to fully document your income to showing a high FICO credit score)
• Not having a mortgage means you'll have a higher net worth since you're not taking on mortgage debt
• You'll have improved monthly cash flow
• You won't have to pay interest on a home loan – interest that could wind up making you pay two or three times the purchase price of your home, as is commonly the case for homeowners with 30-year fixed rate mortgages

So instead of lamenting about how banks aren't lending, or how hard it is to save, if you're serious about getting a home, start planning instead for how you can join the ranks of the nation's all-cash buyers.

To get you started, here are a few tips to come up with the money to buy a home without a mortgage:

1. Put your money to work. Do some research about the market value of homes in the neighborhood you've had your eye on and calculate how much homes there cost. That will give you a financial range as a general target to hit. Knowing how much money you need to save for will help you set a specific goal and make adjustments to your budget accordingly.

While you're amassing your cash, put your money to work by moving it to high-yield savings Search Homes for Sale See photos of homes for sale in your area and across the country on AOL Real Estate accounts or, if you have a nice lump sum now, consider a certificate of deposit. With CDs, you can choose the length of the certificate and time it so that you have access to those funds when it's time to make your home purchase.

Plan on saving for a few years, like this couple, who came up with $143,000 cash, or a 20 percent down payment for their home near Washington, D.C. Though real estate prices tend to be much higher in the Northeast, in many parts of the country, that kind of money can buy you an entire house, since the National Association of Realtors says the national median home price is now $156,100.

2. Get a second job. Invest some of your spare time towards a second job (or maybe a side business) to make a steady side income just for your home purchase. Make sure all of the money you earn from this job actually goes towards a savings account assigned to the new home purchase. It may take some time and energy to reach your goal, but keeping your goal in mind while you work hard to reach it can help you stay motivated.

3. Sell some personal assets. Whether you host a garage sale or put up items for auction, now would be a good time to take inventory of your personal assets and see what you can live without. Make a list of items that you no longer need, want or use, and estimate the value of each. List the items for sale on eBay, Craigslist or at a local community board to drum up some cash, fast. If you can stand to part with big ticket items, like a car, that will raise a bigger chunk of money more quickly.

4. Ask for a raise. While a modest raise won't make you rich within a year's time, every little big helps and the compounding effect of a raise can pay off in years to come – especially if you can keep getting raises. A raise can also make it easier to save money by increasing your cash flow. Just make sure you allocate the extra money coming in directly into your savings account set up for your home purchase.

5. Pay off debt. Free up some cash and reduce your monthly payments by paying off some of your debts. Paying off high credit card balances and loans before you invest your savings towards a home purchase can put you in a better financial position in the long term. When the debts have been paid off, put the money that you were paying towards each debt directly into a savings account for your new home.

If you are determined to pay for your home with cash, remember also that you'll have increased negotiating power when you are finally ready to go house-hunting.

Many sellers would much rather sell to a homebuyer who can pay for a house with cash up front, as opposed to a buyer who has to cross his fingers that a bank loan will come through. So with any luck, maybe one day you'll be at the settlement table, getting the home you want, with no mortgage whatsoever.


For more insight on mortgages and refinancing see these AOL Real Estate guides:

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Colleen

"Do some research about the market value of homes in the neighborhood you've had your eye on and calculate how much homes there cost. That will give you a financial range as a general target to hit. Knowing how much money you need to save for will help you set a specific goal and make adjustments to your budget accordingly." REALLY??

This idea would work for a pair of shoes or a purse as you could save the money in a reasonable amount of time--the price you would need for a house however would change many times over the years that it would take to save the money--you may wish to skip this step as it is about as useless as the rest of the article.

March 28 2011 at 8:19 PM Report abuse +1 rate up rate down Reply
Colleen

What a crock!!! Are you kidding me? What kind of puff story are you trying to feed people here?? I just sold my house and only have 10% to put down on a new house-- my husband makes 6 figures and we have an excellent fico score and we have paid off our bills and we can't even save the other 10% down. I work, my husband has an excellent job but saving enough money to pay for a house in its entirety is a ridiculous notion to be spewing out here to people who are out of work, struggling with the recession and not up for your "put your money in a cd" advice--do you even know what a cd is paying right now? I am sure!

March 28 2011 at 8:02 PM Report abuse +1 rate up rate down Reply
DianaMarie

As for this article...AOL I expected much better from you than this...given the millions of people still out of work, the numbers of people that will lose their homes this year because they are now upside down or underwater in terms of their mortgages...and inspite of the fact that the media continues to try to convince all of us that the "recession/deprecession is over " and the economy is doing better(better for who?) to present an article about buying a home with cash..in a time when most are out of cash, time, hope, patience, food, ..etc.t...is at best cruel

March 28 2011 at 7:22 PM Report abuse rate up rate down Reply
DianaMarie

mysnakes ..please find another reason for you to hate peole other than they are illegal aliens. The jobs many of these people actually take are jobs you would not do yourself..in fact many American's are not going to get up early, work in the hot sweltering sun..picking fruit, veggies, or what ever it is that needs to be gathered for less than min wage. The last time anyone worked like this was during slavery and the slaves were not paid ..they were forced to work and kept like animals.When you can advance the argument that illegal aliens have come to America and taken all the jobs on Wall Street, major teaching positions at any college , have taken over any of the major corporations(that do not pay their fair share of ANYTHING), have robbed the Koch brothers of all their bounty paper towels and revenue.. then I will join the fight with you and decry anyone that is here but not a legal citizen.I suspect that Iwill be waiting until the coming of the lord on this one.

March 28 2011 at 6:55 PM Report abuse rate up rate down Reply
mike3246

you're right Donna it happens

March 28 2011 at 6:16 PM Report abuse +2 rate up rate down Reply
DONNA

No, you have it all wrong. The majority of people who buy homes in cash don't pay Federal Income Tax. Yes, that's right. Those who pay cash for new cars and homes own convenience stores, gas stations, hotels, motels, nail salons, where their business is mostly cash and they don't pay taxes. I just bought Chinese food and the guy never rang up the sale. Just put the cash in the draw. I've been to numerous convenience stores and they don't ring up the sale either. So, if I didn't have to pay such enormous Federal Taxes, I could buy a car or home cash as well. Check out the races then come back with HOW they do it.

March 28 2011 at 6:04 PM Report abuse +1 rate up rate down Reply
1 reply to DONNA's comment
mike3246

that does happen at times not that's a wise deceision but you're right

March 28 2011 at 6:18 PM Report abuse +1 rate up rate down Reply
Annika

Most people don't make enough money to save enough money to buy a home with. If you are low income and can only save $100 a month, it would take 80 years to just save up $100.000, and I don't think anyone wants to wait that long.
A better alternative is to look for inexpensive land, price it out, and do what you can to buy it, even if that means working weekends or a second job. Since labor makes up the biggest chunk of the price of a home it makes sense to build one yourself. Get some carpentry skills through volunteering for Habitat for Humanity or taking classes and start by building something small like a garage. You'll need it to store materials and tools in it. Find out what building codes are in your area and buy a plan from a magazine or the internet; they'll even change details for you if you wish. You may have to build your home in stages which may take several years, but in the end you'll have the satisfaction from owning your home debt-free.

March 28 2011 at 5:56 PM Report abuse rate up rate down Reply
1 reply to Annika's comment
cmptrgru34

Actually a better alternative would be to take out a loan and and buy a hotel, apartment complex or other type of commercial property. Just think of what you could do with the income from those.

March 28 2011 at 6:14 PM Report abuse +1 rate up rate down Reply
Keith

This is the dumbest article I've read in many years, To think this person may be considered an expert or credible in any sense of the word show's how much America has been "dumbed down."

March 28 2011 at 5:43 PM Report abuse +1 rate up rate down Reply
mysnakes1

40 MILLION ILLEGAL ALIENS HAve stolen jobs from hard working americans and 1500-2000 more invade our country everyday. Its no wonder America is heading for another recession.

March 28 2011 at 5:36 PM Report abuse +2 rate up rate down Reply
WARRIOR

I try to learn something from every article I read. I did learn something here. This was an
article I should have skipped. This can be done in a way that have you eating dog food
and walking to the 3 jobs that you will have to have. Check out NewJerseyBusinessBuilders.com
and learn the way I did

March 28 2011 at 5:35 PM Report abuse rate up rate down Reply