With the average home price near $504,000 and the average annual income hovering around $80,000, most people need to take out a mortgage to make homeownership a reality. However, there’s a small percentage of the population who can afford to purchase a house in cash, but still choose to take out a home loan.
We’ll share some stories of the ultra-rich borrowing funds to purchase property and explain why wealthy individuals might use this financial strategy. Then, we’ll offer some ways you can buy a house without a mortgage — even if you’re not in the top 1%.
Why wealthy buyers take out mortgages
These independently wealthy household names have borrowed to purchase or refinance a residence within the past 15 years:
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- In 2018, Elon Musk took out more than $60 million in mortgages across multiple properties, despite having a fortune greater than $23 billion.
- In 2017, Beyoncé and Jay-Z took out a $53 million mortgage on a $88 million mansion, while having a net worth of more than $1.5 billion.
- In 2012, Mark Zuckerberg refinanced his home even though his net worth exceeded $15 billion.
While they could have used cash to complete these real estate transactions, they chose to keep their money in the bank (or invested in other assets).
When borrowing makes sense, even for the rich
There are several reasons why you might want to take out a mortgage even if paying for a home in cash is an option, including:
- Your money earns a higher interest rate than your home loan charges. The average 30-year fixed mortgage interest rate is 6.75%. The average annual return of the S&P 500 index from 1928 to 2024 is 8%.
- You have a lot of valuable assets, but they’re not liquid. People who own real estate or businesses can be very wealthy, but they can’t tap into that nest egg without selling some assets, which they may not want to do. Elon Musk falls into this category.
- You want to keep the cash available for other purposes. Money in the bank gives you options. You can invest, pay for once-in-a-lifetime opportunities or handle emergencies without incurring debt (unless you want to).
- You want to take advantage of the tax breaks. If you itemize your deductions, you can write off the mortgage interest you pay on your income taxes. You’ll also have more money available to invest in tax-advantaged accounts, like a 401(k), individual retirement account (IRA) or health savings account (HSA), further reducing your tax liability.
- You appreciate the flexibility your home loan offers. If interest rates drop, you can refinance your mortgage to save money. You can also pay off your house early if desired.
People who borrow strategically understand that there’s a difference between good debt and bad debt. Good debt helps you purchase an appreciating asset, such as a home or an education linked to a profitable career.
Bad debt finances a depreciating asset (or no asset), such as a car or a vacation, and often carries a high interest rate.
How to buy a house without a mortgage
While there’s nothing wrong with responsibly leveraging debt, there’s also nothing wrong with wanting to avoid it altogether. Even though you likely don’t have a nine-figure net worth, there may be some ways you can buy a home with cash, such as:
- Delaying your home purchase. If you have time on your side, consider consistently stashing money in a high-yield savings account (HYSA) or brokerage account, allowing it to grow over the years or decades. Once you have sufficient funds, withdraw the necessary amount to buy your dream property.
- Asking for help. Your family may be willing and able to chip in toward your house fund. You might also receive an inheritance that covers some or all of the purchase price.
- Borrowing from yourself. You may be able to borrow up to 50% of your 401(k) balance to put toward your home purchase. However, those funds will miss out on the benefit of compound interest until they’re repaid. Additionally, failing to repay the loan can result in financial penalties and tax implications.
You may need to cobble together a plan that includes all of these options (and perhaps other strategies), but living in a mortgage-free home offers one perk that the alternative strategy can’t boast: debt freedom.
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