I've been observing a lot of venom out there these days, from bloggers, cable news pundits, and Op Ed writers, being directed at folks facing foreclosure.
I am aware that there were home buyers out there that were not truthful on their mortgage loan applications. Others borrowed more than they could really afford, expecting continual increases in home prices to save them in a pinch. There are also people facing foreclosure that didn't lie on their applications and could afford their homes at the time, but due to a subsequent job loss, a bankrupting health problem, or some other unfortunate turn of events, are struggling now to keep their homes.
I hate to see everyone being painted with the same brush by the media, because the reality is, many of us when buying a home, really stretched our budgets to achieve that dream, and didn't suffer the unfortunate circumstances that many face today. So we come off looking smart.
I think we were just lucky.
We bought our first house in 1991 in an up-and-coming neighborhood in San Francisco. We saved and searched for years, and when we found the home of our dreams, we borrowed some money from our parents to get us the rest of the way there. We put 10% down, borrowed the maximum the bank would allow us, and qualified with an adjustable rate mortgage.
After the first year, when our mortgage was about to reset, the bank contacted us and said we could keep our low teaser rate for another year. The following year, and every year after that, we adjusted into lower and lower adjustable rates, on occasion even taking money out in the refinance.
Eight years later, we sold that house for double what we paid for it. We then upsized. Flush with the cash from the sale of our first home, we were able to put 20% down this time. Our incomes had grown steadily over those 8 years, so we took out an even larger adjustable rate mortgage. Over the years we made additional principal payments as we could. We continued to refinance our lower and lower loan balance whenever the rate made sense.
Five years later, we sold that house for 50% more than we paid for it. We upsized again, this time putting in a down payment of 60%. We took out a larger loan, with another variable rate, although this time it was fixed for the first 5 years. Again, we made additional principal payments as we could. Our mortgage is now lower than the one we used to purchase our first home. The value of our house has decreased significantly since we bought it, but our loan balance only represents 17% of the current value of the house.
The rate will adjust later this year and we plan to pay off the remaining balance with money we had invested in a CD which was earning a higher rate than our mortgage interest rate. The variable rate is tied to the 1-year Treasury, and if it were to adjust today, it would go down even further.
My point in sharing all of this is, we're not all that different from someone that stretched to buy a house in the last few years, and then got burned by the tanking housing market, increasing unemployment, a catastrophic illness, or the stock market's decline. All the circumstances over the past 18 years: low interest rates, job security, increasing housing prices, and our increasing income, worked in our favor.
But it just as easily could have gone the other way, and then, Rick Santelliwould be saying how stupid and irresponsible we were. And that's why you won't see me high-fiving Mr. Santelli on the trading room floor, because I know the difference between smart and lucky.