Spring is in the air and buying a house is part of the American dream. We are covering home ownership in this week’s FPU class, here is a synopsis of this lesson. Many couples rush into this decision before they are ready, fueled by insistence from family and friends, house fever, or just the general cultural expectation that you get married and buy a home. Home ownership can be a great blessing, but only if you are ready to own a home, and the home doesn’t own you.
Here are the “steps to home ownership” that you can use to determine if you are ready to buy a home. We ask the following questions:
- Are you out of consumer debt? (Student loans, cars, bank loans, and credit cards.) If you purchase a home with a large amounts of consumer debt, you will not be able to handle the general costs of maintenance, wear and tear.
- Do you have 3 to 6 months living expenses in an emergency fund?
- Have you saved for at least a 20% down payment (30% is better)?
If all of the above have been accomplished then you are ready to move ahead with home ownership. We would recommend that you buy a home with payments no more than 25% of your take home pay. But let’s look at a different approach.
The title of this article is “How to Buy a House for Cash”. This is a special case where you have saved 100 percent for a down payment.
Why Would We Pay Cash for a House
First, let’s ask ourselves, why would we pay cash for a house? Because staying away from debt is scriptural (Proverbs 22:7), because we want the freedom for the Holy Spirit to direct us, because we want to build the financial muscle to save for a home purchase, and because God has given us the financial vision to do this.
How to Buy A House for Cash
Many will say, “Brian, this is impossible, no body does this.” It is possible, but people don’t do it because they go crazy on lifestyle purchases. What if you decided to drive a used car, have no credit cards, pay cash for college, and minimize lifestyle for a period of time? Make it your purpose to spend less than you make in the short term so you can prosper in the long term.
Believe this can be done. If you are married and don’t have a unified vision for this goal, you will not achieve it. Pray about it, search scripture (start in Proverbs) and listen to the voice of the Holy Spirit in this area. You have to want follow God’s leading to be out of debt more than you want any other financial goal or possession.
Pray about contentment. An attitude of contentment is one of your biggest assets in establishing a lifestyle well below your income.
Eliminate all debt. Even better, never go into debt in the first place. Student loans, car loans and credit cards will block you from achieving this goal. Stay away from them. You can go to college debt free. See article, “How to Be a Student Without a Student Loan”.
Save, save, and save some more. Start saving for a house in your late teens or early 20s, while you are still single and may not even be courting anyone. Imagine how cool it would be if two like-minded individuals joined forces in marriage, having set this goal in their late teens. What if you each saved $10,000 to $15,000 per year for 10 years. If you can do this, home ownership for cash is very realistic.
It may take 7-10 years to build up enough savings. Two incomes from a married couple really helps with this. Try to save one whole income or even more. The average income in Rochester is $62,000, what if a married couple saved $50,000 per year for 4-6 years. This can buy a very nice home.
Your first house will need to be modest in price. Don’t believe the real estate hype and overbuy. If your realtor tries to talk you into buying more, because you can “afford it”, find a realtor that will support you in your goals.
When you have saved up for your home. Give yourself 2 years to find that first home. Get posted on the market, but don’t be in a rush. Keep praying about contentment. House fever is not your friend. Cash is a great negotiating tool. Even in a sellers market there are bargains
The Grandparent Legacy
Grandparents that have some extra cash might choose to bless a grandchild with the gift of money towards a home. This should be done only if it does not impact the grandparent’s retirement. Borrowing or co-signing for a loan, is strongly discouraged in scripture. It is much better to teach your grandchild how to manage their money.
If the grandchild is managing their money well (you must get involved and discuss with them), and has accomplished the “steps to home ownership” discussed above. A gift would be a good tool to build a legacy in your family. Don’t encourage them to overbuy. The amount given should help them meet their original goals and price point quicker (not move up scale or be a down payment on a house they can not afford). If they are not ready or are uneducated financially, you are not blessing them by giving them money. Take them to FPU (you come too) and help them build their financial muscles, so you know your gift will be a blessing to them.
Brian and Lisa Petersen, lead the Financial Peace University course at Autumn Ridge Church. Concepts like the one discussed in this article are taught in FPU. Brian and Lisa welcome your questions on “How to Buy A House for Cash”. They can be reached at firstname.lastname@example.org.