To Finance or Not to Finance
That is the question of today's post as I share some of our debate over financing a homestead.
Being a Slave?
The rich rule over the poor, and the borrower is slave to the lender.
(NIV Psalm 22:7)
Whether or not you are a person of faith I'm fairly certain you could agree with me that the lender holds immense power over the borrower. It's for this very reason that my husband and I chose to enter our marriage debt free and have stayed that way ever since. This makes the discussion of going into debt for a homestead a very real one. To most people, going into debt to buy a home is nothing to think about twice. Everyone does it, so what's the big deal, right?!
To us, it is a big huge stinking deal. We do not want to be slaves. We want to be free, that is a big part of why we want to homestead in the first place.
Source
Let's Look at the Math
The ideal situation in our minds would be to buy a place outright. Places back home start at USD 95k. But those need at least USD 40k of work to be livable since they always need at least a new roof and often a good deal of plumbing to be legal. So why don't we buy raw land and develop it? The short answer is that it's pretty much impossible as far as we have gathered. I also have the impression that building codes are much stricter here than say in the States. So, all in all, we need a place that's already developed.
We are looking at places below USD 158K (which will buy us between 1-5 acres), or roughly 1 million Danish Kroner, something the bank referred to as modest. There is nothing modest about being 1 million in debt in our humble opinion. We're hoping to secure a place that only needs a minimum of work for approximately USD 127k, but those rarely go on the market.
Now let's do some real math, shall we? We have been able to put away around USD 15k every year, but our income will be lowered with about USD 11k by next year, which will leave us with USD 4k to put aside. We are currently looking into ways of lowering our expenses, but that's for another post.
We currently have just under USD 27k saved up, which makes us 100k short of our goal. At our initial savings rate, it would take us 6,6 years so save up the remaining amount. At our lower rate, it will take us 25 years. We're aware that our saving wouldn't be linear and that this is an incorrect way of doing the math but on the other hand we can't predict raises either, so we have to work with the numbers we currently have.
The Case Against Saving Up The Money
The case against borrowing money is pretty clear to us. Firstly, we do not want to be slaves. Secondly, we would have to pay interest making the total amount a good deal more than if we saved up the money. It seems simple then, doesn't it? We should just wait and save. We've decided to go in the opposite direction though.
There's more to the equation than just money. For us, a move back home would mean being closer to our parents and having our children grow up in their presence. We want to move before having a second child, as our current home is very small. The kind of plans we have for a homestead are all long-term, so the sooner we can get going the better. We also don't want our son to remember too much of city life. We believe that the sooner we can get on the land and share our dreams and vision with him there, the better. There are a lot of other things that go into it, these are just a few of our considerations.
Even at our current savings rate, we would have to wait 6 or 7 years before being able to buy a place and who knows if the prizes will be the same by then. With all of the above and more in mind, we have decided that we would rather be slaves to a lender while moving in the right direction with our dreams, than to sock money away, while being miserable and not giving our son the childhood we want to.
The plan of Attack
In Denmark, you have to pay a down payment of no less than 5%, You then get a mortgage for up to 80% and you can borrow the remaining 15% from a bank. Our plan, as of now, is to be able to put 20% down and thus avoid the more expensive bank loan. If you do a little math, you'll see that we already have 20% of our target amount (DKK 160k of 800k) in our down payment fund.
The next step is to save up enough for a used vehicle. We have never owned a car, we get around on foot, bicycles or public transportation. We are aiming at DKK 30-50k, which is as cheap as a family friendly car gets around here without falling to pieces if you touch it. We have a big emergency fund and we have debated using some of that for a car since we don't need such a big emergency fund anymore.
If we can put 20% on a place and buy a car outright in 1-1,5 years then we'll be very happy. We won't settle for that though and we are working hard these days to find ways to lower bills and put more money away.
Whether or not you are a person of faith I'm fairly certain you could agree with me that the lender holds immense power over the borrower. It's for this very reason that my husband and I chose to enter our marriage debt free and have stayed that way ever since. This makes the discussion of going into debt for a homestead a very real one. To most people, going into debt to buy a home is nothing to think about twice. Everyone does it, so what's the big deal, right?!
To us, it is a big huge stinking deal. We do not want to be slaves. We want to be free, that is a big part of why we want to homestead in the first place.
Perhaps you could come up with your own comment instead of just copying part of her post.
It's obviously part of some sort of cartel. That comment has earned over double what my post earned. It's sad, but I don't know if there's anything we can do about it.
Thats what disappointed me.
My husband and I are in a similar spot. Completley debt free, even own our cars outright and are really not excited about taking out a loan to buy a house. I recently got my real estate license and learned all about how much you pay to borrow money. It's criminal in my mind but anyways, we applied for a loan and were denied, it's a long story. We've both gone back to work so that it "looks good" to the bank and maybe they'll loan us money but we kinda feel like saying "F-U" to them and just finding something that we can afford outright or can do owner financing. I really like the idea of owner financing and have spoken to a few people about their experiences which have been amazing. Our area is really expensive though so for now we're just stacking the savings and waiting for cryptos to go up (;
Owner financing is almost never done here - I've never heard of anyone who did it. We would love to avoid the bank, but not at all costs. We would rather live our lives making payments to them (and getting rid of the debt asap) than live our version of the 'just-outside-Hell' for the next 10-20 years and have our child(ren) be almost grown and gone by the time we can afford a place outright. Land is very cheap comparatively where we want to buy, it's just not affordable for most people anyway.
Interesting to hear about the differences here and there. I get you about the mortgage and buying land so you can have it for longer. Makes total sense to me. Can't wait to see what you find!
There are so many variables. It's about weighting them very carefully. Can you make the the land pay for itself? If it can't then don't buy it.
Can you do a market garden? Sell eggs? How much do you pay in rent off someone else's mortgage?
Why are you buying acres? What to do if you don't get finance?
For me it would always be a business plan, buy land use the land to pay for itself. At least enough to offset the difference between buying food, paying rent etc. Vs the cost of finance. If you've got a good savings it not as much as you think. Or look to a more affordable block?
Good luck with what ever you decide to do. And remember it's not about faith it's about maths. :-)
So many good questions, all of which we've taking into consideration already.
Especially the rent part is on point for us. In the price range we're looking at, we would pay less or the same, and in rare cases maybe a couple hundred more each month than we do in rent and that is including the so called 'cost of owning' aka mandatory insurance, waste disposal, etc. But without utilities, which we also pay separately now.
It is crazy to think that for the same amount of money we could get growing space. We won't set out to make it a business, unless you would call lowering our grocery budget a business😋 There are a lot of laws to get familiar with and we want to take it slowly.
Most regular houses on a 400-800m2 lot are more expensive than the places we are looking at. That's why we might as well go for a small amount of acreage if we want to buy a place.
Good luck, I am sure you'll love it. the feeling of security, not having to move at short notice, being able to renovate and change things. Not to mention the long term investment of your money that is going into other folks pockets right now...
Go for I say!
Thank you. Yes, all of those things (and more) are what we long for.
Knowing what I know now, I wouldn't go into debt for anything. You can never be sure the work is there to carry on paying that debt and if you can't pay it, you risk losing your home. We may be coming up to that situation ourselves and my biggest fear is losing our home.
I can certainly see why you wouldn't want to go into debt.
That is one of our fears too. We have it figured out so that we should be able to pay our bare bones budget for two years with no jobs. But it's still a fear.
Thats what we've been working towards. Keeping that mortgage paid for as long as possible
About 20 years ago an opportunity arose for us to buy our dream homestead in Wales. It was opportunity that was only open for a very short space of time so we took it but it meant borrowing a lot of money on a mortgate. But if we hadn't taken the chance at that time it might never have come again.
We took the mortgage for 25 years but we really don't want to be tied down for so long so we worked and worked. First in one job, then in two, then in three.
It meant a lot of sacrifices but after 11 years and 1 month we finally paid off the debt. We were so very very happy. It was hard work but it was worth it.
The feeling of owning our own place with no debt to anyone was immense. It was a major life achievement.
I can only imagine how awesome that must have felt. We are thinking of doing something similar. Not sure how long it would take us, that might depend on the number of children we are blessed with, but we certainly don't plan on staying in debt for 30 years.
Well done! We've always paid down extra on our mortgages to try and clear them sooner. For us, though, the job situation here in South Australia is getting worse. Last time hubby was made redundant it took him 4 months to get more work and it was at a supplier for GM Holden which they were already talking about shutting down. Now October is the final month and in an area where unemployment is at 33% we're going to have thousands more looking for work and it will have a knock on affect throughout Australia. Things have changed a lot in just 10 years and job stability has become a thing of the past here. Is not even easy to get a job at MacDonalds now! 😂 we're certainly facing an uncertain future.
We absolutely are. I pray your husband will find a new job quickly. My husband has both a trade and an academic degree, so we are hoping his chances are a little better in a worst-case scenario, but you never know. Right now the industry he is in is booming here in Denmark, so, for now, we can breathe a bit more relaxed.
That's great news. Gives you that breathing space to get rid of the chains as soon as possible!
I can't wait to hear about what you get.
I would consider it a possibility to get the life that you want to live. Sometimes we just need to take our chances and go for it. I don't do math very well, but from what I just read in your post I think you will find a way to make it work.
Thank you for those encouraging words. We really hope we can make it work.
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