Tuition at the School of Hard Knocks: $50k

By | April 15, 2014

So last month I told you about how I made it out of the University with a Bachelor’s Degree with almost no debt, and how to graduate debt free. Yesterday I told you about how I became a home owner and landlord at age 19. You probably think I’m great at making financial decisions. Well, I’m much wiser now than when I bought that damn house. (Warning: You may experience multiple *headdesk* and/or *facepalm* moments while reading this post. Continue at your own risk.)

My house in 2007
What a cute little yellow house!

After my freshman year in college I decided it was time for me to move out. So I figured the best financial decision was to buy a house. Because why throw away money paying rent? I shouldn’t throw my money away, instead I should invest* it in real estate. I will be putting my money towards home equity! Brilliant!

So as a naive teenager I set out to buy a house. I loved the 2nd house I toured. And it was in my budget** (barely). I was overcome with excitement and emotion. Which is the exact wrong condition to make the biggest financial decision of my life and foreseeable future. But I was young and dumb inexperienced. I put in an offer and entered contract. Yes. I bought the 2nd house I looked at.

Dunce signing a mortgage contract
Freedom?
No, More like 30-year shackles.

I thought that buying a house was like declaring my freedom. We settled on the house just 1 month from the date I put in my offer. Wow. The summer of 2007 I became a home owner.

It was the biggest mistake I have made in my life so far.

 

Flash forward.

Recently I have become very interested in personal finance, investing, and saving for retirement. I figured out “my number” – the amount of money I believe I’ll need in order to be financially independent. Then I loaded all my assets and liabilities into mint.com. And to my dismay, my net worth is very negative. How? I don’t have any student loans, car loans, or credit card debt!? Well, because the value of my house has been steadily falling since the day I bought it.

home value graph

I purchased in 2007 at $136,000 and now it’s worth about $72,405***. I’ve lost over $60k on my house; It’s worth 47% less than when I bought it! Like a clearance, my house is marked down – 47% off! Any way you slice it, It SUCKS.

A Little Relief

Well back in the fall of 2011, I knew I had to do something about my payments and interest level. I had never missed a payment and my loan was not backed by Fannie Mae or Freddie Mac, so I didn’t qualify for a break. I took the FHA Streamline Refinance which didn’t require an appraisal (because I was under water on the house). So I refinanced at 4.5%, loan balance of $130,795. What I did not fix was the fact that I still have to pay Private Mortgage Insurance. 🙁

Today’s Predicament

Today I owe a remaining principal balance of $123,258.38. That’s significantly more than what it’s worth. That’s really bad. Yep, I’m currently $50,853.38 under water. Heck, I’m fucking drowning! If I sold it today I would have to come to the table with $50k! So basically I am completely chained to this house until I can get my head above water, sell the damn thing, and swim to shore. Until then, my net worth is negative and I can’t even fathom financial independence.

So as you see, home ownership is not rainbows and butterflies. It’s not necessarily a responsible financial decision. In fact, for many people right now it just plain sucks. There are a lot of people out there in the same situation as me. I hope that my posts about my house situation will help others who are dealing with this and help me connect with those people. Maybe someone will have a brilliant tidbit of information to help me out? Hey, a girl can dream.

 

* Buying a home to live in as a primary residence is not an “investment.” It’s hard to categorize. It’s a necessity, a holding tank for your money which will hopefully keep with inflation, a risk, a liability, and an asset.

** My budget was bullshit. 1. I should have had 20% downpayment saved up before even shopping. 2. The banks were handing out mortgage loans like candy – a 19 year old with a part time job should never be approved to buy a home, EVEN despite my dad cosigning.

*** According to Zillow. I’m having a Comparative Market Analysis done, so I’ll update you when I get an estimate from a Real Estate Agent.

10 thoughts on “Tuition at the School of Hard Knocks: $50k

  1. Erica

    Hi Rebecca,

    So amazing of you to put yourself out there with all this! I have really wanted to buy a home, but it’s definitely not been the right time in my life yet. I was always brought up to believe that renting was irresponsible, and that buying was the best option. Wish I had that brilliant tidbit of information for you! Do you listen to the Suze Orman Podcast? She’s got serious tidbits.

    Reply
    1. Bex Post author

      Thanks Erica! I finally was just so frustrated about the situation that I HAD to tell someone. So I had a Skype interview with Kraig at Create my Independence and he was just blown away at my situation. He said it was unique and that I should share. So I’m hoping that I can help other people who are in a similar place or maybe prevent someone from making the same mistake!

      Reply
  2. Moooooser

    I understand you’re predicament, because I recently went through the same thing! I bought a new house with almost nothing down in the summer of 2006. When I needed to move I was ~$30k underwater, and by April of 2012 I was $37k underwater! Fear not though, I never cut that check, and have been renting it out (basically at break-even) since I needed to move. I’ve put an extra $20k at it since then, refinanced the debt, and the housing market has bounced back. I now have $35k equity, which is an astounding recovery in only 2 years. Had I actually sold back then it would have been devastating to my net worth. So it can get better!

    BTW, great post about homeownership not being all “rainbows and butterflies”. I constantly hear otherwise very intelligent shamelessly promoting home ownership to anyone who will listen, without even understanding their personal situations.

    Reply
    1. Bex Post author

      Wow! That is an uplifting story – I hope that my situation turns out like yours! That’s awesome. I have been considering renting it out as well, but the landlord fees & laws in my city are crazy! And with an old house there are more hoops with lead paint risk mitigation. We’ll see.
      I used to shamelessly promote home ownership. After “being burned” I’m mostly against it! BUT I know that all situations are different. I guess I just want people to REALLY think about their situation before jumping into it. Homeownership is a big decision not to be taken lightly like I did.

      Reply
  3. Suburban Finance

    That’s really brave of you buying a house when you’re 19, it’s just unfortunate that the market crashed a couple of years after that. I personally waited to buy my own house — when I was completely sure I settled down and unlikely to move anywhere. Like you said, having a house made you tied down to something and when I was younger I felt like I always wanted to live in different places!

    Reply
    1. Bex Post author

      Yes. Back when I purchased I knew I was going to be sticking around for at least 5-7 years and I figured as the market kept moving and I kept improving that I would be able to sell without bringing money to the deal if I changed my mind. And so it has been over 6 years and the way my city and state have changed and my life has changed – it’s just not a good fit anymore. Years later I’m having buyers remorse (as opposed to right after the purchase I was happy)

      Reply
  4. Emilie

    This is a very well written blog and its great that you are sharing this information, although, I am sorry you are so hard on yourself. 🙁 Don’t forget that many, many people made the same mistake in trusting mortgage broker’s advice on how much debt they could afford and you can’t blame yourself for not knowing the market would go south. $50k seems like a lot to be underwater, and it is, but there are people who rack up $40k or more in undergraduate debt and then have to consolidate it at 8% interest rate; and other people who blithely spend more than they make and suddenly realize they are $30k in credit card debt at 13-24% interest, deepending on the card. What a relief it is that you refinanced to obtain that lower interest rate. You are doing all the right things now; keep it up.

    Reply
    1. Bex Post author

      Thanks cuz! Yes I do try to keep it in perspective, but it’s difficult at times. I luckily have no consumer credit debt and no student loan debt. So I just will keep whittling away at this debt as best as possible. Aunt Marcia, Dad, You, and other bloggers have been good resources for me to bounce ideas around. My main concern is that it seems in this area property/home values are still declining and crime in our city is rising which is not helping my situation. I wish I had more control of the situation.

      Reply

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