Can You Do 100 Owner Financing With No Down Payment How To Pay Off Your Mortgage In 5 Years

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How To Pay Off Your Mortgage In 5 Years

My wife and I have been “home buyers” for at least 7 years in our current residence. Note that I said “home buyers” not “home owners”. There is a common misconception that when you take out a mortgage, you are immediately an “owner” of the home.

Assuming you have a 30-year mortgage, the reality is that you are simply in the process of buying the home over a 30-year period. The bank is the real owner of the property. If you don’t believe me, try missing a few mortgage payments and see what happens.

3 months ago, we paid off our 30 year mortgage (in 7 years, or 23 years early). We are now real “owners”. In this article, I will show you step by step how we achieve this. Using our existing income and not taking on any additional debt.

fairness

Let’s talk about “Equity”. Equity, or appreciation, is the difference between what your home is worth and what you owe the bank. So if you owe $100,000 and your home is worth $300,000, then you have $200,000 of equity in your home.

We had about $250,000 of equity in our home. We owe the bank $115,000 and our house was worth $367,000.

This $250,000 is sitting idle. I mean, it looks good, but it wasn’t doing anything for us.

Home Equity Line of Credit (HELOC)

So the first thing we did was to “leverage” this equity. We went to the bank and took out a home equity line of credit for $50,000.

What is a home equity line of credit? Also called a HELOC, a home equity line of credit is a liquid line from which you can withdraw funds at any time for any purpose. It’s like a giant credit card.

Even though the HELOC had a $50,000 limit, the amount we owed on it was $0 at the time we took it out. That’s because, like a credit card, you don’t owe anything until you use it.

Use HELOC to pay off your mortgage

Immediately after getting the HELOC, we withdrew $20,000 and applied it to our mortgage (additional principal payment).

So at this point, we have $20,000 owed on the HELOC, but our mortgage has been paid off by $20,000 ($115,000 to $95,000).

Use HELOC as “new” checking account

Before I go on, let me mention that after using the $20,000 to pay off our mortgage, we still had the same $115,000 in debt ($20,000 in HELOC and $95,000 in mortgage).

So to pay off the HELOC, we just used it as our new checking account. When we got paid, we took 100% of our paychecks and applied it to the HELOC.

Now you may be asking, “with all our money going into the HELOC, how do we pay our bills?” Remember that the HELOC is a “liquid” line. So at the end of each month, we make 1 withdrawal from the HELOC to pay our bills (including our mortgage).

100% of cash flow

For us, our monthly paychecks came to about $6,000. Our bills, including our mortgage, and all of our living expenses (gas, groceries, etc.) added up to about $3,500. So by applying 100% of our monthly paychecks to the HELOC and then using the HELOC to pay our bills, we were able to use 100% of our monthly cash flow to pay the $20,000 down on the HELOC.

So with an estimated cash flow of $2,500 ($6,000 minus $3,500), the $20,000 was paid in 8 months.

Repeat The Process

We repeated this process until the remaining $95,000 was paid (approximately 2 years).

What do you need?

1. Cash flow – You must have a positive cash flow in the household budget

2. Credit Score: A decent credit score (650 or higher)

3. Equity – Positive equity in your home.

What you should know

VERY IMPORTANT: The HELOC must be used to pay off your mortgage. It should not be used to finance a holiday, buy a car or a boat.

ALSO IMPORTANT: A HELOC is not a home equity loan (HEL). A home equity loan is a second mortgage and is treated the same way.

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