Free and Clear! Whatever Happened to Owning a Home Without A Mortgage?

By
Real Estate Agent with Crye-Leike REALTORS® 165062

When I first got my license in real estate in the late 1970's we had MLS real estate binders in Brooklyn New York.  The binders were always filled with leaflets of new listings, and old listings were taken out and placed in a separate section that denoted contract status.  Those that were sold were discarded.   The interesting thing back then showed type of owner's current financing.  I was surprised even then to see how many homes were listed as F/C or "Free and Clear!"  That meant no mortgage.  When folks paid off their mortgage they actually would hold a mortgage burning party!  That was a major achievement in life, and the goals of every homeowner.  Back then... a 30 year fixed rate mortgages were the norm.  20 - 30% down payment was normal, and no one really ever asked the seller to pay their closing costs.  The object back then was to build equity!  Pay down the principle however your could!  You could do it with tax return money, prepayment of principle by working every hour of overtime that came your way!  It all made sense.  It was money in the bank, and a nest egg for your family's future.  I would love to figure out what happened, and when credit that made no sense took over.  I guess some folks viewed it as the best way to get their was by using Other People's Money OPM as leverage.  Get the most for the least!

Owning a home was more than just owning it in name only.  Technically, the person that purchased something with nothing down would have been viewed as foolish, it would be even more foolish for a person to lend to them.  In that scenario, there is nothing to keep a person from walking away from their responsibilities when things got rough.  Bankers would have considered that type of loan pure risk!  Nothing down really means you are in name only an owner but have absolutely no equity but all the liability of the property.  That is not a very good situation to be in.  It's what the banks are now calling "De-leveraging!"  I call it walking away from personal responsibility!

As agents, we used to tell a first time home buyers about the value of paying off their mortgages early, and about pre-payment penalties.  They appreciated it, and used to send other referrals to us!  As an industry, we seemed to have stepped to the side on this advice.  I wonder if it was a smart thing?

Posted by

James Crawford ABR, Broker Associate

 

 

 

 

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Rainer
78,779
Obeoman Glade Jones
www.obeo.com - Salt Lake City, UT

 

Jim,

There is always the constant push-pull of the tax advantages of the mortgage versus the very real wealth of no debt.

It seems logical to think that eventually, in the future, property ownership will be attainable-but so expensive-many people will not be able to pay their mortgage off.

 

Steve

Apr 12, 2008 03:23 AM #27
Rainer
7,322
Carmen Tomlinson
Re/Max Select RE - Maple Valley, WA
King & Pierce Counties WA
Jim another fantastic post!  Headline caught my eye.  So true.  I think the more people have the less content we are...really makes no sense but true.  There are lots of families living WAY above their means just to have stuff.
Apr 12, 2008 04:09 AM #28
Rainer
69,829
Kathy Fisher Sells Lexington TN homes! 731.845.3413
Five Star Real Estate Services - Lexington, TN

I remember when my own parents were finally able to purchase a home.  It was such a big deal.  I was 13 at the time and they had waited SO long for homeownership.  Waited til they had a good down payment, waited til they had their closing expenses, waited til they could afford the monthly payments, WAITED!  Homeownership was a priviledge for those who earned it not the right of anyone and everyone. 

Once again a great post!  Thanks Jim

Apr 12, 2008 07:27 AM #29
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Obeoman Steven Stearns  If a person ever really understood the tax benefits of owning a home in real dollars, they would not bother.  The tax advantage to writing off interest is limited.  The expenditure does not outweigh the gain!
Apr 12, 2008 09:21 AM #30
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Obeoman Steven Stearns  Stuff has a price, and it may detract from one's peace of mind at some point.  Life is more than accumulation - shelter, peace of mind, and security should be a bigger part of the picture!
Apr 12, 2008 09:23 AM #31
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Kathy Fisher RE/MAX Unlimited Realtor  My parent owned a two family home, so one side paid rent!  It paid half the mortgage!
Apr 12, 2008 09:24 AM #32
Rainer
150,370
Steve Homer
The HBH Group (Keller Williams affiliate) - Round Rock, TX
We live in a different world today and personal responsibility is often not even thought of.  What a shame!  I agree with you completely Jim and teach in my new investors seminars that debt paydown is a part of true financial freedom in RE investing.  Unfortunately there are far too many late night salesman who teach otherwise and far too many consumers that think there really is a something for nothing model that can make them rich...  Let's keep preaching the real truth to all that will listen my friend!  Thanks for the great post!  Steve
Apr 12, 2008 10:55 AM #33
Rainmaker
902,376
Kay Van Kampen
RE/MAX Broker, RE/MAX - Springfield, MO
Realtor®, Springfield Mo Real Estate
Jim, great looking site.  I've been away working real estate and helping family.  Looks like you are ahead of the pack again.  I haven't had a house payment for years.  Sure would be difficult in today's market.
Apr 12, 2008 02:26 PM #34
Rainer
67,279
Rob Muller
ReMax Town & Country - Canton, GA
Cherokee County Real Estate
Interesting Post. I actually have had 3 clients this year that owned free and clear. I didn't think it happened anymore
Apr 12, 2008 02:36 PM #35
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Steve Homer  Steve thank you for the great remarks!  Sometimes it is like a voice crying in the wilderness and no one is listening.  It is better to keep to the truth, and not compromise our values.  If a person asked me if I would do 100% financing the answer is "No!"  I would not buy any property without 20% down! 

Apr 12, 2008 03:37 PM #36
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Kay Van Kampen, Broker, Springfield Missouri Real Estate  Thanks Kay!  Been slow here still!  Yes!  I have had a payment, but it was never anymore than a rent!  My mortgage was always around $1500 a month!  I try to practice what I preach!
Apr 12, 2008 03:41 PM #37
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Rob Muller - ABR, ASP, RCC, CNHS, LREA Cherokee County Real Estate  Well it is very rare here in Atlanta.  Most of the deals for the last few years were 100% no money down!  That is why we are in the trouble we are in here...no equity!

Apr 12, 2008 03:43 PM #38
Rainer
55,757
Doug Fritchie
DOUG FRITCHIE-Silver Legacy Properties,Inc. - Portland, OR
Jim~ Ahhhhh...the good old days...People attempted to own everything out right...Today, they own as much as their CREDIT will tolerate !
Apr 12, 2008 04:03 PM #39
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Doug Fritchie  I think before the year is out, many will be wishing they had a low fixed rate 30 year mortgage or no mortgage!

Apr 12, 2008 04:08 PM #40
Rainmaker
81,351
Christopher Ohlsen
Credit Werx, LLC. - Malone, NY
No, Jim it really is not a smart thing that many people have given up on giving sound advice to their clients. I spoke with a gentleman a couple of days ago who told me that he has the money in the bank to pay off his mortgage but that his financial advisor told him not to... His financial advisor's reason is that a mortgage is "the cheapest money that you can get"... While the amortized interest rate on a mortgage may be more attractive then say a credit card or personal loan it is not as cheap as 0% interest. I don't get it at all... Unless you are using the money that you are holding to invest and the investment is giving you a return that is greater than the interest that you are paying on your mortgage that does not make any sense. I would rather have available equity sitting in my home at 0% interest than have all of my equity used up and have to pay any percentage on it.
Apr 16, 2008 09:01 AM #41
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 Christopher Ohlsen  If most people are like me me money in investments isn't making anything  in this market or for quite sometime!  When most folks lost money in the dot.Bom failures in the last stock market correction my equity was in my home!  When I sold that home I made a very substantial tax free profit which I rolled into another home, and that I made another major tax free profit from the investment!

No one ever really questions the motives of financial planners.  I had afriend that was one, and one day he let it slip he had filed a while ago for bankruptsy, and had lost his home!  Should I invest with him?  Could it be that the advisers do not want you to move funds that they get paid a commission on, or that they do not want you to move out of their institution?  I still think real estate even in this market is a better place to sink my money than stocks, bonds or most instruments!  I am on the sidelines again, waiting my next deal!

Apr 16, 2008 11:26 AM #42
Rainer
3,909
Richard Daley
Prudential Page Realty - Medway, MA

Hi Jim,

 I lived in Georgia during most of the eighties, had I invested in real estate while I was living there, I would own several homes free and clear today.

I was taught that what made America great was that "We saved our money and that we made things"

Today we do not save and we no longer make things. Our money is spent foolishly and our manufacturing base has deteriorated to the point that we are now a service oriented society. 
Apr 16, 2008 11:48 AM #43
Rainer
9,863
Will Merritt
TampaBayLoanOfficer - Pinellas Park, FL
Tampa Bay's Most Trusted Lender

Jim I believe we all need to get on broad with the good mortgage acceleration program that are out there. Talk about adding incredible value to your clients and helping them pay off mortgages sooner if they want to but we all know that most families will move in the 5 to 8 year time frame. This will allow them to have control with th equity buld up that will occur faster for them. My realtors like using this to show clients that no matter where the housing market goes up or down, their clients will be the best possible position to move and not have to worry if they could move and just get out with out having to bring money to the table. I like that some of us remember when you needed money down to purchase. Feel free to visit my website www.tampabayloanofficer.com to learn more about home acceleration. I feel and want to help America to become debt free and create true wealth for families. Thanks  Will Merritt

Apr 16, 2008 12:05 PM #44
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Richard Daley  It is really sad about American values in decline!  Common sense has taken a holiday!

Apr 16, 2008 01:06 PM #45
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Will Merritt  I wish we had more pro-active mortgage folks like yourself that could work in conjunction with Realtors as a mortgage planner to map out a home buyer's strategy!  In the future our leads may come from cultivation of buyer prospects!
Apr 16, 2008 01:14 PM #46
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