Two and a half years ago, at the age of 25, I took out a loan for approximately a quarter of a million dollars.
It sounds a little more ominous when its phrased that way, doesn’t it?
A year an a half after graduating from University, I made the leap from renter to home owner. Remember when Lululemon first started putting out their goal setting merchandise? All of their sales associates were wearing t-shirts with their goals on them and the dates they intended to achieve their goals by. Usually they were along the lines of “Open my own yoga studio” or “Run the Boston marathon” or “Climb Mount Kilimanjaro”.
My goal was “buy a house”, with a goal date of October 2010. I had one of their smaller shopping bags, and I used it to take my lunch to work with me every day. Whenever the goal looked like it was wearing off the bag, I’d use a sharpie and write it back on there. I looked at that goal every day.
I beat that goal by 11 months. I’m not sure that I’m actually proud of that anymore.
Home ownership vs. renting has never really been a question in my mind. In the time that I’ve been alive, my parents have always owned their own home. Back in the late 80′s, when mortgage rates were prohibitively high, my parents still bought their home instead of renting. Rather than borrowing from a bank and paying out the nose, they borrowed the money from my grandmother, and paid the mortgage back to her. My only childhood exposure to renting was when we had to move north for work, and my parents ended up renting out our old home while they tried to sell it. They carried two mortgages for around 6 or 7 months if I recall correctly.
In our family, home ownership is something to be aspired to.
Being that I moved away from home for school, and stayed away for work, I never had the luxury of living with my parents while saving up a house downpayment. That means that I did have the experience of renting as a young adult. I rented with boyfriends, by myself, with a couple guys (one of which was an on again off again boyfriend), with one girl, kind of the whole renting gamut. Some of these living scenarios were extremely stressful at times.
After a particularly stressful period of time with the on again off again boyfriend, I moved out in a hurry. I was going to lose my mind there. I crashed at a friend’s place for 2 weeks while I looked for other apartments/roommates. I ended up sharing an apartment with another girl, against my ex’s advisement, and foolishly agreed to a 60-40 split of the rent because I made more than she did.
For some reason I always fell for the I can’t afford it BS, and then very bitterly watched them eat out/buy stuff on a daily basis…
Anyway, this arrangement turned out to be even less stable than the arrangement I had just moved out of. Suffice it to say that the girl had some issues, and wasn’t interested in dealing with them.
The living arrangement was vaguely stable at the beginning. Two days after we moved in together I was shipped up to a project outside of Fort McMurray, and was only home for 9 days out of each month. By the end of September 2009 I was back in town full time, and our living arrangement DID NOT WORK.
Having paid off my student debt, pumped up my RRSPs, and put a little money aside in savings, I decided to start looking for a place of my own. I decided I wanted to look at homes below the $200,000 price point, which was well below what I qualified for. After several viewings I realized I wasn’t going to find what I was looking for at that price point. I bumped my price point up and found more appealing options. By the end of October I had viewed several houses, and ended up putting an offer in on the place I currently call home.
She wasn’t pretty by any means. She was a foreclosure. The previous owners or tenants neglected the exterior, and completely trashed the interior. My realtor almost walked out as soon as we walked in the front door. The carpet was intentionally stained, the bank had patched multiple holes in the walls (lots!), two of the elements of the stove had been pulled and stretched, the plastic water pipes in the basement were hanging down from the ceiling, the towel bar in the bathroom had been ripped off the wall, you name it.
What it did have was space and location. My home has a reasonably large yard, faces south and overlooks a green space rather than other houses or buildings. I can walk by myself at night, and I don’t worry about being mugged. It’s too far out of the way for that sort of thing. It’s well side walked and trailed, so there’s plenty of places to run and rollerblade. Most of the damage inside the house was cosmetic; it would just take some effort on my part to get it fixed up. In its trashed state, the appraisers came back with a value of $305,000 for the house. The appraisal was a bit high, but it’s right in line with what similar homes sell for in this area. We ended up settling on a price of $250,000.
The cost of paying for a mortgage on a 3 bedroom duplex is considerably different than the cost of splitting a 2 bedroom apartment. It’s approximately double actually. Not only that, but certain utilities were included in my apartment price that I now had to pay for on my own. There were multiple problems in the home that needed addressing right away, so I never allowed an adjustment phase between renting and owning before I started buying renovation supplies. I had no idea what my costs were, I just knew the online calculators and the banks said I could afford it. They liked giving me money.
I spent thousands of dollars buying hardwood flooring, appliances, plumbing supplies, paint supplies, you name it. The first thing I did, which may be the only bright thing I did during that period of time, was install a programable thermostat in the living room.
I really should have stuck to my guns and kept looking around at my original price range. When articles write about how you shouldn’t use your maximum pre-approval as your goal house price, they’re not joking! I didn’t butt up to my maximum, and I still found myself exceptionally strapped for cash.
Compounding this problem was when 2 weeks after I moved in (and started buying reno supplies), I quit my job and took one at a company that paid me about $7,000 a year LESS.
Not smart.
Fortunately, 2.5 years later, I’m at a point where I can comfortably afford my home now. Rather than having a mortgage balance sitting at 4.5 times my annual income (at its worst), it’s now sitting at a more comfortable 3.3. That was achieved though a combination of higher wages and lower remaining balance. I’m looking to get it below 3 times by the time I have to renew.
If I knew then what I know now, I probably wouldn’t have bought this house. I was in way over my head when I bought it. The fact of the matter though is that I did buy it, and I’m not ready to sell it. Nor is the house ready to be sold for that matter. It was a very well positioned piece of property, even more so now that they’ve built an elementary/junior high school right across the street from me. (my green space is still green space though)
Home ownership isn’t a small undertaking, particularly when renovations are involved. Rules of thumb are there to help you, and it’s worth heeding them even when the bank gives you the green light to spend. Remember that banks are a business set up to make money.
How much did/do you pay for the home you’re living in? Do you rent or own?
Recommended Reading: Credit Card Woes.
Like this:
2 bloggers like this post.
