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
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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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