We never intended to have a mortgage. Debt is something we take seriously and we consider a mortgage to be debt. The thought of having a mortgage for 15-30 years sounded suffocating.
Just thinking about how we could have grandchildren before our house was paid for was just too much.
However, we realized we could actually save money if we played our cards right.
A Little Back Story
My husband started saving for a house even before we married. At the time, he was living in a small, run-down rent house on purpose, and paying only $600 a month in rent. He even chose to keep the same truck he drove all through college when everyone else would have bought something brand new.
Now, why would he do that when he was making good money? Because he had a mission.
Timothy started renting that house when he was hired at his company right after college. He was making good money and could have lived anywhere, but he chose a cheap place in a run-down neighborhood so he could grow his savings account to buy a house cash.
After all, his coworkers were all “living better” than he was. But he had a goal to one day buy a house with cash.
He could have gotten a 30-year mortgage, but why? Why not live frugally and buy with cash OR pay a mortgage off very early? Why not do something different?
After we were married, I was completely on board with his mission. I was impressed by his determination and will power. A few months after we were married, the government offered a First Time Home Buyers Incentive. (This was circa 2009.) The deal was that you could get a rebate of up to $7,000 on your taxes IF you met certain qualifications.
The qualifications were pretty basic. One of them required that the home had to be your primary residence and you had to live there for at least 3 years.
We decided 3 years was something we could commit to. We began considering buying a house instead of losing money on rent each month. We found a small, inexpensive house as our “starter house” and devised a plan to pay it off as quickly as possible.
1. Gather the Facts…And Get Your Calculator
- We were paying $7,200 a year in rent for our small rent house.
- Timothy had been saving intensely for the two years before we were married and it had amounted to $35,000-$40,000. We knew that if we bought a less expensive house, a $30k down payment would go a long way.
- If we paid the house off quickly, then the $7,000 buyer’s incentive would cover the interest we would have to pay on the mortgage and we would probably have some left over for savings.
It’s important to plan and make logical choices so you don’t get in over your head. This will help you keep your payback amount as low as possible.
2. Save For a Big Down Payment So You Don’t Have As Much To Pay Back
Before thinking we were insane, here is something important to note:
Yes, Timothy had a good paying job BUT I was and still am a homemaker.
So pay attention here… That means, I am not contributing monetarily to our family. On his own, he was making between $80k-$95k a year.
There are many families that make that much because both the husband and wife work, so, we aren’t embellishing. We aren’t hiding anything. We didn’t inherit any money and we didn’t discover oil on our property. We are number crunchers who are very frugal!
Because of that, Timothy had saved the $30k for a down payment in just 2 years.
Why is a big down payment important? Because it means you will have less to pay back. Your mortgage will be smaller.
How do you save for a big down payment? Frugal spending and planning.
3. Only Get a House You Can Afford To Pay For Quickly
Nothing is certain…not even a good job. People get laid-off all the time. We wanted to keep that in mind as we looked for a house to buy. We wanted to buy one that we could pay for even if Timothy lost his job and had to find another one making less money.
Thankfully, we live in a state with many great neighborhoods that have reasonably priced homes. After a couple weeks of looking, we found a 1200 sq. ft., 3-bedroom home near Timothy’s work. The price? Only $73,000.
It can be tempting to buy a house that is your dream home from the beginning. However, just because you can scrape up enough for the monthly mortgage payment each month, doesn’t mean you can actually afford it. What if you lost your job or became sick a couldn’t work for a while?
It’s important to keep those things in mind.
4. Ask a Lot of Questions When Applying For a Mortgage So You Know What You’re Getting
After we found the perfect house, we went to a local bank and applied for a mortgage. The bank officer seemed shocked when we told her we were going to put $30,000 down and we only needed to take out a mortgage for $43,000.
We also asked her several times if we would have to pay a penalty for paying the mortgage off early. It was a 15-year mortgage, but we had no intention of keeping it that long.
We planned on having it only 2 years… Tops.
Our monthly mortgage payment came out to only $400 a month. That was less expensive than rent! Even if Timothy were to be laid off, we would have to live SOMEWHERE, and $400 was less than any rent house we would have found. So, we felt safe taking out a mortgage.
5. Get To Know Your Amortization Schedule Like It’s Your Best Friend
“An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and the amount of interest that comprise each payment until the loan is paid off at the end of its term.”Investopedia
I enjoyed looking over our amortization schedule. It outlined 15 years of payments and I saw it as a huge challenge.
In the beginning, your mortgage payments are mostly interest with only a little principal. As time goes on, your payments are more principal than interest.
What that means is that your early payments aren’t doing much to pay off your house. Most of your payment is going back to the bank in interest.
Don’t place your amortization schedule in a drawer and plan to just make the same monthly payment each month. Look it over, plan ahead, and devise a way to make at least one additional principal payment a month.
6. Make Multiple Payments a Month, But Keep a Cushion
Each month I would look at our amortization schedule and our bank account. I had to pay our $400 mortgage payment regardless, but I could pay as much as I wanted on top of that.
Any payments made in addition to the standard $400 payment would all be applied to the principal amount owed. That is what actually reduces the overall amount you owe.
Timothy always had a base amount he wanted left in our checking account for general living and emergencies. That amount was $2,000. He always felt that if we always kept that amount in our checking (during the time we were paying off the house) that we would be okay if we had to purchase a new washing machine, have an unexpected vehicle repair, etc.
This was hard to get used to because we are savers. We like to keep a bigger “cushion” than that but we knew these times were different.
One day, we would have our mortgage paid off and we could start saving again, but until then, we were putting everything we had toward paying it off EXCEPT for our $2,000 cushion.
When it became mortgage payment time each month, I would open our checking account online and automatically (mentally) subtract $2,000. I wasn’t going to touch that money. Everything else was fair game to apply to our mortgage.
Each month, I would make 10 to 13 months’ worth of principal payments. The first payment would be the standard $400 monthly payment. Then I would include at least 10 more months of principal-only payments.
In the beginning, only about $100 of the $400 monthly payment is actually principal. The rest is interest you are paying to the bank.
This is why it is so important to make as many payments a month as you can. We wanted to make that $400 monthly payment as few times as possible because we wanted our hard-earned money to go toward the principal instead of interest as much as possible.
When you look at it that way, it becomes easier to make additional payments. Why not mail in an additional payment (or 10) each month so you can make your principal amount shrink?
Here is an example of a monthly payment I would make: I would make a $400 standard monthly payment plus $1000 extra which was ten $100 payments.
That took care of 11 monthly mortgage payments in just one month. Since payments in the beginning are mostly interest, that means I only paid interest once in the initial $400 payment, and I saved $3,000 worth of interest in the additional 10 payments.
This is why it’s important not to “over buy” when you are buying a house. If you get a mortgage on a house that is more expensive than what you actually need, then it could become almost impossible to make additional payments each month based on your income.
How were we able to afford so many payments at once?
7. Use Radical Money Saving Techniques
Many people are in the position to save more money than they do, or pay off debt they have but aren’t willing to make the sacrifices needed. If you have big goals, then you have to make big plans.
Here is what we did:
No Paid TV Service
You read that right. No cable, no satellite, no Netflix. We have never watched much TV anyway since we consider it a huge waste of time, but when we did, we only watched what we could get with an antenna. We received about 13 channels with an antenna, and that was more than we needed anyway.
No Eating Out
Eating at restaurants is also a great way to waste money. In the past, people have tried to convince us that since they are single or have no children, that it’s cheaper to eat out than eat at home. I say that’s a bunch of hooey. If that were true, then restaurants wouldn’t make any money. They are still in business because they are charging you more for the food than what it’s worth. Period.
Smart Date Night
This consisted of renting a movie from the library and watching it at home…because it was free…and fun.
No expensive phone plans
We have always looked for good but inexpensive pre-paid, no-contract cell phone plans. Over the years, we have changed providers to get the best deal. We get the same service, from the same towers, with the same data for about 25% of what other people pay for the same thing. Currently, we are using Red Pocket. You can check out their deals here. We have found that they are unbeatable.
Smart grocery shopping
We didn’t buy cheese for a YEAR! We decided that cheese, along with other types of food, was expensive and completely unnecessary. Crazy, but true.
We’ve saved over $180,000 by doing crazy things like that.
Here’s the interesting part… We never felt deprived, left out, underprivileged, sad, or any other word you can think up because we weren’t living like every one else. In fact, we thought it was fun!
We liked being the ones accomplishing our goals. We didn’t mind seeing people drive by in their flashy new cars with their new iPhones because: (1) We aren’t impressed by flashy new things, and (2) We felt we were headed in a direction they weren’t, and we liked our direction better.
8. Create a Budget
To pay debts, you must first determine where you are currently spending your money and make a plan to cut back. We created a budget and posted it on the front of the fridge. We wrote EVERY expense on that spreadsheet and evaluated it each month.
If we got a little crazy one month and spent unnecessary money on eBay, Amazon, etc., we corrected the mistake the next month. We consulted our budget daily and corrected spending mistakes.
Your budget isn’t your enemy. Consider your budget your friend. It isn’t restricting. It’s actually freeing. It’s like a written set of goals that prevents you from having to continually repeat them in your mind. With just one quick glance, you can stay on track.
9. Be Honest With Yourself and Use Highlighters
To create a budget, you first need to make a list of what you spend money on each month. This includes: mortgage/rent, entertainment, utilities, gas, groceries, car payment, retail therapy, insurance, eating out, etc. Be honest with yourself. Write down EVERYTHING.
Now, get out your highlighters. Pick a color and highlight necessities. When I say, necessities, I mean NECESSITIES. Getting your nails done is not a necessity. Starbucks coffee is not a necessity. If you have debt, new clothes are not a necessity unless your clothes have holes in them or you recently caught your only pair of pants on fire (In which case, you need to head to your awesome, local thrift shop!).
Now, choose a different color highlighter and highlight unnecessary things. This is where you highlight that Starbucks habit, eating out, excessive salon expenses, and the new set of rims you bought for your truck. These are things you need to stop.
Finally, choose another color and highlight things you need to cut back on. This includes unnecessary gas (You can’t go joy riding when you have debt to pay); Also included is too much spent at the grocery store.
Because buying colas and chips, etc. when you have debt to pay is a no-no.
Now what do you do?
10. Put Your Plan Into Motion
Get busy! Cut back on the things you highlighted in the “cut-back” category and CUT OUT unnecessary things. If you are honest about your expenses and make radical changes, then you can save money AND pay down your debt.
Being debt-free is freeing. It has been years since we lived in that first house with the mortgage. We paid it off in 13 months and stayed another two years. We then sold it and used the cash (plus more we had saved in the meantime) to buy a house that was a little larger.
We then sold house #2 and used that cash plus more we had saved while living there to build our Big House in the Woods with CASH!
11. Rise Above and Be Different
You may not like this, but here is what really irks me…I can’t help but shake my head when I see people with debt (mortgage, car payments, medical bills, etc.) yet they are treating themselves to manicures, concerts, brand new cars, vacations, shopping sprees, UTVs, season passes to amusement parks, etc. These are bad habits.
If more people took debt seriously and took considerable actions to pay it off, then they wouldn’t be in a bind when unexpected things happen. They would also have financial security.
You can live your dreams AFTER you have paid off your debt and built up financial security. For example, we have been on 10 cruises, bought 15 acres, built our dream house, bought (and sold) two campers, bought two UTVs, etc. and we owe no one for any of it.
Know that it’s good to stand out from the crowd. Just because everyone else is doing something, doesn’t always mean you should. When you have a goal to pay off your debt, it’s okay to say no to things or events that will end up costing you money.
It’s okay to swim upstream.
12. Be Proud of Your Accomplishments- Big AND Small
Everyone has different incomes, expenses, and situations, but saving and paying down debt should still be a priority. Based on your income and expenses, it might take you more time to pay down your debt, but in the end you still PAID. DOWN. YOUR. DEBT.
That’s a huge deal and it’s something you should be proud of no matter how long it took you. Always remember to keep your head up and your feet pointed in the right direction.
13. Sometimes You Have to Live a Little
I get it. You can’t keep your nose to the grindstone all the time. Sometimes you would like to treat your kids to a zoo trip, go on a date with your spouse, or have a nice latte.
Here is what you do: Go to the zoo on “discount day.” Each year, our local zoo has a “Dollar Day.” Admission is only $1 per person and it’s a great way to have fun and not spend much money.
Pack a picnic lunch and date your spouse at a beautiful park. This would be adventurous and inexpensive.
Learn how to make your favorite latte at home. Last Fall, I cooked up a fabulous Pumpkin Spice Latte in my own kitchen because even though we are debt-free, I still refuse to pay Starbucks $5-$7 for a cup of something hot that costs .20 cents to make.
14. Action Item… It’s Time To Get Busy!
Get out a pen and paper and make a budget. Set goals. Make a plan. Get busy.
That’s what we did. We didn’t waste any time! We set our goals and got busy.
Remind yourself of your goals every day and how well you are doing!
What are we doing now?
We still practice many of these money saving techniques today. It’s a habit. We just can’t help it. However, we also enjoy it!
We have built our dream home on 5 wooded acres near my husband’s work. We also own 10 acres in the Western part of the state near Timothy’s family where we hope to live one day. We own our vehicles, which we bought used, naturally, and our UTVs. We owe no one for anything.
We carry no balances on credit cards. However, we have a Capital One card that we charge all purchases on so we can get the bonus points. We pay the ENTIRE balance each month. We have bought and sold 2 campers over the years before we decided we didn’t like camping.
You can read about the first camper adventure here. (It was a 1970s camper and a really odd shade of pink…)
As of today, we have been on 10 Caribbean cruises. The first one was a celebration of paying off our mortgage back then!
We actually went on 4 cruises in a year one time because we got crazy. However, we can now afford to be crazy because we have no debt, and we continue to put money away in savings EVERY week.
We enjoy continuing our money saving habits so we can max out our 401k, Roth IRAs, etc. to prepare for early retirement.
Our next goal?
Something to remember…
We have the same “stuff” as everyone else.
We have a house, 2 cars, land, and a UTV.
The difference? Ours is paid for even though our household income is about the same as a lot of people.
Because we practice all of the money-saving techniques that I have now shared with you!
You can do this!
All the best,