Skip to main content

Home Buying - Cash or Credit?

I've been saving up for a house for a while. I heard it's better to wait to actually be able to afford things than go into debt.

How's it going guys?! As you've noticed by the title we'll be discussing home buying today! One of my favorite topics and one many people have questioned for years. I'll toss some numbers at you today and you can continue deciding your plan from there.  The biggest point of controversy is whether to save save save save save and buy your house outright OR take on a sizable amount of debt to get into your dream house early. Right now we'll be discussing the facts, and my personal opinion on the situation.

To get this all started off we'll go ahead and get some quick info out of the way for buying a house outright to see where we stand and elaborate on it later:


  • No debt hanging over your head to stress you out.
  • If repairs come up you'll be more financially flexible enough to tackle it.
  • If you decide home buying isn't for you a couple thousand dollar hit on the resale won't sink you.
  • No interest paid to a bank


  • Astronomical upfront cost
  • Typically puts home buying off by up to 30 years depending on your savings plan
  • Could require much more upfront costs than expected as houses are known to generally appreciate in value over the years.
  • No guarantee you'll save money going interest fee (I'll explain).

Let's get this out of the way now so you won't be questioning it the whole time. I'm about 80% pro financing your home. The numbers don't make enough sense for renting or leasing to take the time and effort to save the total cost of a home. My main reasons for this: 
  • If you're going to save up 100K, there are much better things you could do with it.
  • If I'm going to be paying a monthly payment for something I would at least like a portion of that go to an end state of owning that item instead of some business mans pockets.
  • Leveraging large amounts of other peoples money effectively boosts your financing report.

Time to get down to the facts. These numbers are very generic as interest rates and home prices change all the time.

  • Home Price: $100,000
  • Monthly Budget: $1500
  • Rent: $500

Buying your home with CASH

This is a tough argument to have because I don't really know anybody saving the kind of money it would take to actually be able to grab a house in cash. There are always things that come up that the money could better be used for at the time. This is immediately a huge flaw with this option, but for arguments sake, lets say you can save perfectly for 10-20 years and make this happen. 

During this time you'll be renting or living with parents(weird) and that living costs money. As you can see above we parked this number at $500/m. I know, that number is extremely reasonable and it supports your argument. So that takes $500 out of our monthly budget leaving us with $1000 to save for a house each month. $100,000 / $1000 = 100 / 12 = 8.3 means you'll have enough money to purchase your house after 9 years. 

9 years living in your "cozy" 2 bed / 1 bath apartment. At an assumed 3% appreciation per year for that dream home you'll be looking at $100,000 x 3% = $3,000 x 9 = $27,000 with a variable rate that brings us to around $22,000 / $1000 which means you'll need an extra 2 years to buy this home you've been eyeing. 11 years later you have your dream home! $22,000 over budget with $500 per month x 12 months in a year  = $6,000 per year. Now we'll take that $6,000 x 11 years of rent paid = $66,000 in "Interest" / Lost Money paid in rent that could have gone to your home bringing you to a grand total of $188,000 for your $100,000 you saved so religiously for. 

Buying your home on CREDIT

Back to traditions. With todays interest rates you're looking at about 4.5% on your first home(depending on your credit) coupled with a 3.5% down payment. You're buying your home today meaning you have to fork up $3,500. You spend a couple months at home saving your full $1,500 bringing you into your down payment amount after 3 months of saving(woohoo). 3 months worth of saving to buy a home. 

$100,000 - $4,000 = 96,000 financed over 15 years. Reinventing the wheel ending somewhere in B.C.'s so listed to the left of this post is an image of an online mortgage calculator including Private Mortgage Insurance and home owners insurance along with interest paid. You automatically come out saving a little over $200 a month if you take the full 15 years to pay down the loan. 

If you'd like to pay that down earlier you easily have room for that option as well. With the current plan, you'll pay $161,000 total and you'll be occupying your beautiful hand picked residents the entire time. Even with interest and home insurance you still come out paying less than the amount you would have paid for rent plus savings. 


Popular posts from this blog

I'm Debt Free! - ...Now what?

So you've taken the plunge to eliminate debt in an educated way . You've dedicated hours to reviewing finances and cutting expenses. You stopped going out and drinking designer coffees every morning wondering "when will it end?". It's always nice getting that final email notifying you of your $0 account balance, but now what?  You've probably noticed it's a little easier to come up with extra money each month, because you're not slowly being eaten away by credit card fees, payments and monthly interest charges.  You can finally take a deep breath! Below I'll outline a couple great ways to spent that extra money that continues adding to that retirement fund, and also let me know which topic I should dive into further in the comments! If you're struggling getting to this debt free point, then now is NOT the time to stress and start impulse buying . You're doing great! Emergency Fund I know this isn't the most exciting part of becoming deb

Historic Lows?? Is a Home Refinance the Best Move?

This has been a year full of ups and downs across many different aspects of life. Since COVID-19 has started people have lost jobs, started jobs, changed career paths, and gone on unemployment. This has been some of the worst months for certain people and some of the best for others. Due to all of the changes going on right now and that continue to happen one of the biggest questions on everybody's mind is, "Should I refinance my home?", "Will a lower monthly payment help us get through these harder times?", "Will a shorter loan term give me more money for the future?", "Does paying less interest matter to me?". Everybody has questions about this new uncertain future and hopefully some of the information belong will hope answer that for you, and if not feel free to reach out  and we can discuss your specific situation.  How much does a refinance cost? This can be the biggest hurdle for many people when it comes to changing up their mortgage.

J. Money Inspired Millionaire To-Do List

It's finally time to get this on paper for the first time ever! Of course I have various spreadsheets and apps talking about my expenses, assets, and my goals for increasing one while minimizing the other(honestly could go either way), but putting out a list to the universe of what needs done to break the ceiling on a 7 figure net worth is totally different.  Obviously this awesome idea comes from  J. Money over at Budgets are $exy and his Millionaire Club . We're all wannabes just out here getting it done. From the looks of it though, several have crossed that threshold and I'm looking to follow closely behind! In order for me, Ryan, to become a Millionaire, I pledge to do the following (each year): Start contributing to my 401k - My company currently does an automatic match of 3% so I don't have to contribute any minimums. I'm not currently contributing due to limited funds and my drive to purchase real estate at a young age. I'm slowly realizing putting all o