A would-be homeowner may wish to avoid the risk of taking on sizeable mortgage debt. One way this can be done is by building the home with cash, completely avoiding mortgage debt even if some shorter term debt is involved.
For example, the would-be homeowner may undertake month-to-month credit for building materials or services, yet always settle this indebtedness promptly when it falls due.
Credit extended over any longer period should be avoided like a disease. The intention is to work with the cash currently at hand. When that cash runs out, the home builder will patiently wait until he has accumulated enough cash again to make another thrust at building.
Unless such would-be homeowners have access through above average earnings, a sizeable inheritance or some other windfall, their home can take many, many years to reach full construction. More often than not, the would-be homeowner (and sometimes his immediate relatives and friends) is also involved in the actual construction works in order to minimise out-of-pocket costs.
Striking evidence of such house building are homes that take four or more years to build and often remain unfinished.
For this approach, the would-be homeowner must have the fundamental characteristic of patience. This route to home ownership through hard cash and limited credit is usually arduous and lengthy. Few persons, particularly young professionals and couples, have the will power and emotional stamina to delay their satisfaction in having their own home.
Delaying having a stable home can also mean delaying starting a family and that may be undesirable for a young couple. Then, to go against the norm of getting a mortgage, takes nerve and discipline – the nerve to side-step the pressure from peers to do as they do, and the discipline to maintain the commitment to building whilst peers may already have acquired their dream home using a mortgage.
There is another serious downside to building a home with cash. The most striking disadvantage is the delayed gratification in not living in one’s dream home, yet there is also the risk of inflation in building costs and in real estate costs generally over the years it takes to build. Serious inflation can make using a mortgage the wiser financial choice. Inflation is the enemy of him who waits. So, there can be clear disadvantages to building a home for cash.
On the other hand, there is significant merit in undertaking to build your home for cash, avoiding the risks that a mortgage can impose especially during prevailing tough economic times.
Employment income is typically the most important basis of the mortgage arrangement. If employment income falters or disappears say, through job loss, the real property may be lost through foreclosure. In any event, just not being able to meet the mortgage payment for even one month is stressful, and the longer period for which payments are missed, the greater the stress. The mortgage becomes like a noose around the homeowner’s neck.
On the face of it, particularly in today’s financial market, the desire to build or own a home for cash may seem unorthodox. Yet, this “unorthodox” view can be adopted even if only in part. For example, the would-be homeowner may supplement building for cash with some medium term debt. Another alternative may be to undertake a smaller mortgage by making a larger down-payment on the property.