100% Down Plan

[dczech09]

Hey all.

I have put some serious thought into my future. I am 23 years old right now and will have my car paid off this spring. After that I will be taking out my student loans; if all goes according to plan I should be starting 2013 completely debt free!

So, I have pretty much made up my mind and decided that once I am debt free, I am going to stay debt free. Yes, this means no mortgage as well. I am almost 100% dead set on undergoing the 100% down method for home ownership. My rationale is that instead of paying interest to a bank, I will pay rent to a property management company. In the long run, rent will obviously be cheaper than paying $100,000+ in mortgage interest.

My question is has anyone on here successfully done this? Has anyone done a 100% down purchase or is there is anyone else on here considering this method?

[disneysteve]

I didn't do it but lots of people do. Certainly, it is more feasible in low COL areas where housing prices are more modest. Also, if you don't mind moving, you can buy a "starter" home for cash, live there for a few years while you pile up some more cash, sell that place and move up to a better place also paying cash for that. It is a bit harder to get the "dream home" for cash right off the bat.

[GREENBACK]

Personally, I wouldn't look toward buying a house outright. You're young and the very best time to start saving for your future is now. Trying to save the money to buy a house will take a lot of money that you could invest in your future and watch grow exponentially with little effort. Waiting to do this, even with your paid off home, will cost you dearly in the end.

Don't worry so much about paying a little interest to a bank. Instead, worry about the interest you're losing out on paying to yourself.

[JuniorTT]

Just make sure you are comparing apples to apples. Let's say it takes 10 years of amortization to pay $100k in interest...if you were renting instead during those 10 years you might be paying $50-75k in rent instead. You also need to consider that mortgage interest is tax deductible so the delta between buying and renting shrinks even more. However, there are property taxes, maintenance costs, and utilities to consider which would increase the delta. Also consder that you are missing out on living in the home for however many years it takes to save all the cash. Plus real estate values change so that's something to factor as well. Investment returns play in too.

I do agree it's tempting to try but for me if it would take more than 5 yrs to save it wouldn't be worth the wait. Maybe consider buying and just paying down the mortgage early?

[jpg7n16]

I think it would be kinda cool to do.

But how does your retirement savings factor in to all of this?

[bjl584]

If you can do it, then I probably would.

Just be careful. As jpg said, you may do it at the expense of saving for retirement.

A starter home like DisneySteve suggested may be the way to go.

[littleroc02us]

I'm with ya man, 100% down is a dream of mine also someday. There is absolutely no problem with saving to pay 100% down and to rent until then. My advice though in the meantime is that after you pay off your debt in 2012, make sure you have an EF of 3-6 months, and then before you start saving for 100%, make sure you are putting away 15% to retirement. If you can manage this and save for the 100% go for it! You should let us know how it is going as time passes.

[LivingAlmostLarge]

How long will it take? And you won't put off retirement savings right?

[feh]

We bought our current house for cash, but it is our second house. We went the normal route (mortgage) with our first.

Unless you make a ton of money, it will take a long time to save the money (assuming you aren't buying a house in Detroit). I wouldn't sacrifice retirement savings to do it.

[littleroc02us]

Actually, here is a good example, my wife and I live in Minneapolis, we can rent apartment for around $700. We have no debt and invest 15% (401k is 12% total and $800 for Roth IRA)of our income in retirement and clear 5k a month along with my wives pay. My total bills including rent, roth, groceries, etc are $2000. In addition at my job I get 2 extra paychecks a year because I'm paid bi=weekly and it's basically not in my budget so it's an extra 5k, so annually we would be able to save $36k a year. Basically that would take less then 7 years to save up 250k which is quite the nice house in Minneapolis. So, yes it is possible if you sacrifice and rent cheap for just 7 years, clearing 5k a month.

[SimplySaving]

I think it's a great goal and I think it can be done. Like other posters have said, just make sure you do things in the right order and have all of your other financial ducks in a row. Have your emergency fund and be contributing to your retirement. It is much better to try for this than to jump into a home you can't afford. It's great that you are planning so well at such a young age! Good luck!

[dczech09]

Thanks for the replies.

Just to clarify, I would never consider sacrificing retirement savings for a 100% down payment. I would of course set my emergency fund to 6 months; I choose 6 months since I'm commission based right now and am looking to become self employed in the near future.

If my income and expenses stay the same (less the debt payments of course) then I would be able to save at least $1,000 month when the time comes. I am also paid bi-weekly so the two extra paychecks would speed this up. So lets say $16,000 per year; I could save up $100,000 in just 6.25 years. Obviously I would want to save up a bit more, but still not a bad time frame. I could reasonably buy a house outright in my early 30s!

My friends think I am crazy and delusional, but we'll see who is delusional when I own a house and they're still under their "debt is good" mentality.

[DebbieL]

I think you are a smart young dude. I wish you all the best with your goal (and I think it's a great one).

[MonkeyMama]

I didn't save 100% for house purchase, but $100k wouldn't even be 20% down where we bought our first house. As such, I think it is very feasible, and a good plan considering that you will not sacrifice retirement, etc. I agree with some of the others that speed matters. 5 - 10 years may be worthwhile. Much longer than that? Would probably be better off borrowing. It just depends on the numbers. Renting is so expensive where we live, that waiting to pay cash makes little sense in our own situation.

But we saved $50k+ down payment by the time we were 23 (20% down on a condo). About $100k saved by the time we were 25 and bought our second home (moved somewhere cheaper - high cost region to moderate cost region). If we could find a decent place to live for $100k, I certainly would have paid cash.

Obviously we could not have saved as rapidly in a low cost region (lower wages). So, there is a catch 22 there.

Good Luck!

[Snodog]

In some areas of the country renting actually makes sense(especially if you are young and unsettled). Here is a rent vs buy calculator that you may find helpful. Good luck with your goal!

Is It Better to Buy or Rent? - Interactive Graphic - NYTimes.com