Over the course of my 34 year life, I’ve made plenty of boneheaded mistakes, like the time I just had to race the truck that was alongside me at a traffic light. When it comes money, there is one mistake that I made that easily stands out as the scariest: buying my first house. It didn’t start out scary, in fact it started out with excitement, but it quickly progressed into scary territory.
Coming Up With a List
My first step to buying my house was a typical first step: I sat down and wrote down the features that I wanted to have in my house. I wanted three bedrooms, a garage, a basement and a nice yard for example. Then I sat down with a mortgage broker to go over what I could afford. From there, it was back to my list to cross out things since my ideal house couldn’t be had based on my income. When I finally had my list completed, I reached out to a real estate agent to start looking for homes.
The Trouble Begins
My agent began sending me houses for sale but none met what I really wanted. Many were in areas that I didn’t even want to live in. I expressed this to my agent and she started showing me other houses, house that were close to the maximum loan amount I could afford. This is where the problem began.
When you first start looking at houses at one price point, then jump up to another price point, the differences between the houses becomes night and day. I quickly fell in love with the higher priced homes and eventually settled on a home that had an asking price that was more than I could safely afford. This is where the trouble began, but the issue of too much of a house wouldn’t hit me until later on.
I had no problem qualifying for the mortgage since this was back in 2007. Anyone, and I mean anyone could get a loan back then. Because I was borrowing so much, I was considered a subprime borrower even though my credit was excellent. I thought all of my troubles were behind me, but they were only starting.
When it came time to close on the house, the lending company went under. I was trying to close in late August 2007, just when the first cracks in the housing bubble started to appear. The lending company that was supposed to fund my loan had to fund a few million dollars’ worth of loans that day and they had no money to do so. My agent scrambled, calling her mortgage person and they were able to close on the house a few days later.
The Trouble Continues
The good news is that the closing went smoothly and I owned my first house. The bad news is that I couldn’t afford it! To help cover the costs, I brought in a roommate whose rent helped me to keep my head above water each month, even as the value of my house dropped and I went underwater.
When he moved out a few years later, I was earning enough from my new job that I could afford the house on my own, but money was tight. I’ve since rented my house out since it is still underwater.
What are the lessons I learned from my house buying adventure? Here they are, in no particular order:
- Follow the guidelines and buy less of a house. Your first house doesn’t have to fill every possible want that you have. Learn to differentiate between must-haves, needs and wants. While it seems like having a high monthly mortgage payment isn’t that big of a deal, it is. I couldn’t take vacations or do any updating to my house because all of my money went towards the monthly mortgage payment. On top of that, I lost out on increasing my savings both for retirement and non-retirement. When I mentioned I was able to stay afloat by having a roommate, I was just barely able to do so. My financial life was put on hold for three years: I couldn’t save more and I couldn’t spend more or less. I was stuck. That feeling added tremendous amounts of stress to my life. If I opened my mailbox and an unexpected bill came in or my car broke down and I used my emergency fund to repair it, I was toast.
- Another thing I learned is that the saying about no one cares about your money as much as you do is 100% true. I let my realtor talk me into buying a bigger house. I don’t blame her. I should have said no and stopped looking at those houses or even found a new agent. But I didn’t. She was looking out for her best interest: a higher sales price means a fatter commission for her. Guard your money and don’t part ways with it so easily.
- Finally, don’t even give into temptation to look at houses that are at the high end of your price point and don’t look at houses just over it either. It may not seem as though a $40,000 increase in a house would change the features of a house that much, but trust me, it does. Once I saw how much nicer those homes were, I was in trouble. I don’t think anyone could have talked me out of buying the house that I bought.
Overall, my scariest money mistake turned out OK for me. I am still underwater, but I still have a renter who takes great care of the house. Even though I am charging her above market rent for the house, I still have to put money towards the house each month. It’s not a lot of money, around $100 per month. That is better than not renting it out or even worse selling it and having to come up with $25,000 to cover the mortgage. I am able to save again and do not have the stress in my life that I had before. With that said, I never want to experience that money mistake again. Lesson learned.