5 ways to build your house debt free (2024)

It is no doubt that for most people building the home you want comes down to money.

It is money we think about first, and money we think about last. It dictates what “wants” we can have in our house. Many times it determines the timeline for our build also. No matter what, money is always a factor.

I get asked, at least weekly, about something money related. Some want to know how much their house will cost. Others want to know how to secure a loan. And occasionally people want to hear about how Farmer and I built our home debt free.

There are A LOT of different methods to build a house debt free, and we will discuss those in just a minute. First, I want to tell you our story.

Farmer and I have always hated debt. He came from a family who put a big emphasis on avoiding debt, and we realized very early on what money concerns do to our relationship. So we decided to make a goal to avoid debt at all costs.

One year later we paid off the last of our debt, which was the payments on Farmer’s pickup. Then we made a plan. Our plan was simply to live off as little as we possibly could, and put every extra penny into savings for our home. We wrote out a budget, and tried a few different methods, but mostly we just said “no” to ANYTHING that wasn’t absolutely necessary.

Let me tell you, it was REALLY hard. It’s not something that our world supports, so the pressure to buy everything we wanted ***was always there. Originally our goal was to build in 5 years. We didn’t quite have enough, so we took another 2 years to keep saving.

When we began building, we did not have 100% of what we needed. But I had been watching things, and doing research, and had found that the cost to build a house was going up almost as fast as we were saving money. We were at the point that if we didn’t build now, we would just be adding to the total amount we needed. It would have pushed our build back farther and farther.

So we decided to start the process now, and just build with the money we had. We knew we wouldn’t finish the house, all we wanted was to finish enough of it that we could move into it. Then all of the money we had saved would already be put to the house, and we could continue to finish it with cash over the next few years.

We broke ground just before our 8 year wedding anniversary. In order to make our dreams come true, we decided that I would be the general contractor and that Farmer would help out with whatever work he could on the house. We also decided to take our time so that we would be able to find the prices that we could afford and go at a speed that was manageable for us.

We moved into the house the next summer, after 8 years and 9 months of following our plan to remain debt free. Our house is far from finished, but we love it! We are living in it comfortably, and finishing it at our own pace, with cash. We have no mortgage hanging over our heads. We don’t have to worry about coming up with that money each month. We just spend wisely, and put whatever is left over towards the finishes on our home. I am certain it will be a couple of years before we are completely finished with our house, but I don’t mind one bit. Being debt free, and owning our own home, is absolutely worth the (almost) 9 years it took us to get there.

Because I love running the numbers, let me show you just what kind of money we are dealing with here:

Several years ago, when we began saving for our house, we figured it would cost around $350,000 to build.

After saving for 7 years, we met with a general contractor to get a more accurate number. He told us it would cost $500,000 to build. *ahem, what’s that you said??

We began our build with $215,000 saved up, and big plans to move in with that amount.

We moved in 9 months later for $223,000.

Now let’s rewind for a minute…. Let’s say we went ahead and took out a loan 7 years earlier for $350,000 to build our house instead of saving up the money first. Let’s also say that was a 15 year loan at 4% interest. These next numbers are estimates, not exact, but pretty darn close:

Our monthly payment would have been around $2,500.

At the end of the 15 years, we would have forked over an additional $150,000 just in interest.

So the total cost for our house would now be $500,000. Imagine if that was a 30 year loan … yikes!

If we put that same mortgage payment ($2,500 per month) in the bank instead, after 8 years we have $240,000 saved up to build the house with cash. That’s much better!

Now, this is not the only way to go about building a house debt free. There are actually several different methods to do it, however, none of them give you the house of your dreams right this minute. That is usually the part that hangs people up. We want what we want, and we want it now, right? Wouldn’t it be better though to have that $150,000 in interest instead of kissing it goodbye over the next 15 years?

Choose one of these options, or combine more than one, and you are on your way to building completely debt free!

1. Start small, and flip them.

I have heard from many an owner builder who basically does this as their living. In most states, the rules are such that as an owner builder you do not have to have a license to build YOUR OWN house. Once your house is built, you have two years before you can sell and do it again.

So you follow this plan:

• Save up enough money to owner build a small home, let’s say $50,000.
• Live in this home for 2 years while saving more and planning your next home.
• Sell this home for $80,000.
• Owner build your next home a little larger for $100,000.
• Live in this home for 2 years while saving more and planning your next home.
• Sell this home for $175,000.
• Owner build your next home a little larger for $210,000
• Live in this home for 2 years while saving more and planning your next home.
• Sell this home for $375,000.
• Owner build your dream home for $400,000

In 8-10 years you will be building your dream home in CASH. And in case $400,000 won’t cut it for you, just continue on with the plan until you have the amount you need.

2. Set up a pre-mortgage plan and save it up before you build

There are 2 differences between have a mortgage and setting up a pre-mortgage plan.

• The house you live in during the process
• The interest

Setting up a pre-mortgage plan can be a simple or detailed as you want. All it means is that you do the math now to figure out exactly how much you will need to build your house. Then decide when you want to build, and divide that number by how many months you have until you want to build.

Example: I need $250,000 to build my house and I want to build it in 8 years. My pre-mortgage payment would be $250,000 divided by 96 months =$2,604 per month

This number becomes your “mortgage” which you put somewhere until it is time to build. If you follow it as strictly as you would an actual mortgage, then you WILL have the amount of money you need when the time comes to build your house. Plus you don’t have to come up with the extra hundreds of thousands of dollars in interest you would have paid if you had a real mortgage.

You can even go so far as to set up a separate bank account and have it automatically move the funds over each month. Find a way to keep yourself accountable to your “pre-mortgage” and your goals will be met in the timeline that you have made. Then you will have a giant wad of cash to build your home with when the time comes.

You won’t be living in your new house while you make your pre-mortgage payments, but you also won’t have any debt.

3. Sell everything and live on site while you build it slowly with cash

It’s amazing how much extra stuff we accumulate over time. How much cash could you come up with if you sold everything you didn’t absolutely need right now, and moved into a small and temporary home on the site of your build? Do you have a house to sell? How about couches, dressers, beds, desks, and other furniture? Do you have extra dishes, clothes, toys, or other things that could be done away with? Even just for a year?

I have heard from plenty of ambitious owner builders who have gone this route in order to stay debt free.

Sell everything you can, and buy a trailer or build a tiny temporary home on site with a few thousand.

When you don’t have to rely on a bank loan, you actually have a lot longer of a time limit to build your house. You can also get temporary permits or owner builder exemptions so that you don’t get penalized for taking a few years (or several) to finish your home. You can also get a temporary permit to move into your home as soon as it is liveable, and finish building while you live there.

Using this method, you can use the amount you had saved up, plus the amount you just made from selling everything, to get your house started. Then you can continue to build with cash while you live on site and have very little expenses because of where you are living- lower power bill, no house payment, etc.

One more bonus of this method is that you will literally be living next door to where you are building. No travel time to check on the house or go work for an hour or two. If you end up hiring any sub contractors then you will be right there to keep an eye on them and to help with any problems or questions.

4. Start small, with plans designed to add on every few years.

I feel like this method is a lot more common than most of the others. I know A LOT of people who have built a home with the intention of adding on later. Even people who don’t owner build will often go this route so they can have their house now and then upgrade it later on when they have been able to save some more money.

You can start as small as you like really. Some people even start with a trailer or manufactured home. Just be careful if you go that route to make sure you will be able to add and change what you want later on, without hurting the structural integrity of the beginning portion of the house.

I suggest drawing up (at least roughly) what you want your final house to end up like. Then see what portion of your home you can afford now, or save up for a couple years and afford.

For example: On our home we could have just built the great room to start out with. It is about 1100 square feet and includes the kitchen. We could have easily framed in a little bathroom near the kitchen (where the plumbing would already be) and a bedroom or two inside the living room space.

Then when we had a few years to save up some more, we could have added the west side of the house, which is the 3 kids bedrooms and 2 bathrooms. Then we could have knocked out the walls we put up for the bathroom and the bedrooms inside the great room to open it back up.

Fast forward a few more years and we could add the east side of the house with the master sweet, pantry, laundry room, and another bathroom.

A few more years and we could add on the garage and the porches.

If you go this route, you will always have a house to live in, and you will always have another project to look forward to. Sound good? Just make sure to plan ahead for this one. You don’t want to have to be redoing things when you add on because they won’t work for a larger house. (HVAC, electrical panels, etc.) Every step of the way you need to be making sure things will still work for your house when you are all done adding on.

5. Build a shell, then fill in the inside slowly

This method works especially well if you are building a barn style home or something with a very simple shape. You will also need a little bit more money to begin with, because you will still be doing the most expensive parts of the house first. (foundation, exterior walls, windows, doors, roof, HVAC, plumbing, electrical, etc.)

Instead of building the whole house, you will just be building the exterior walls right now. Only a few of the interior walls will be added for a bathroom and maybe a bedroom. You can leave pretty much all of the finish work undone. Just put in the absolute essentials and whatever your building department requires in order to get a temporary permit.

Then you can add in the interior walls and the finishes as you have the money to do so.

Unfortunately for all of us, there aren’t any great (and legal) ways to come up with hundreds of thousands of dollars in a week in order to build our new home debt free. The reality is that it takes a little time to make this happen, and some good planning. But building a house that is yours, and that you don’t owe money on, is one really great thing that is worth waiting a few years for.

Any of these methods can be adapted to your personal situation. You can even combine a few of them if that is what works for you. It takes patience, dedication, and sacrifice, but building a home debt free is possible!

Interested in other ways to save money while building a home? CLICK HERE to read which upgrades cost the most and which ones are surprisingly cheap!

If you would like to see what our house looked like when we moved in unfinished CLICK HERE.

~Farmer’s Wife

**Pin that sucker for later!