Nii bought a house and it sank!
It was 2006 and anyone, I mean ANYONE, could get just about any house they wanted. No money down, bad credit. You made $30K a year and you wanted a $450K house; you got it! Subprime lending was at it’s prime! After med school I was off to Atlanta, GA, to start my general surgery residency program. After all of those years in school, I felt like the late Johnny Kemp. “Just got paid! Friday night!” Not a whole lot of money, but I was getting paid and not living on my student loan checks anymore. Maybe it was the feeling of “I have finally arrived” or maybe I just needed to feel like a full fledged adult… Whatever the reason, I was ready to cash in those delayed gratification checks. And I had the perfect timing! I found myself smack dab in the center of the housing boom.
Renting an apartment in the city would have been the easiest way to initially settle down in this new city. But, why rent when you can buy, right? Renting is like throwing away money when you can own and build equity. I mean if all of my friends were getting houses right after graduation. Why couldn’t I? Never mind the over $230k in student loan debt or that I didn’t plan on living in ATL past 5 years, or that didn’t have any money for a down payment! All of that didn’t matter. It was my time!
No pun intended, but I was definitely keeping up with the Joneses. When I started house hunting, I was shocked by two things: 1) how expensive even the smallest townhouse or condo was and 2) how easy it was to get a mortgage with little or no down payment! Foolish me… I thought I was getting this great deal because I was in a reliable occupation and the mortgage lender knew there was a strong possibility I would be back for repeat business. The stage was set. On one side we had the mortgage lenders ready to shell out mortgages to those who can’t afford it and on the other side there were people like me looking to take on loans far beyond the ability to pay.
So, after only four paychecks, I was the proud owner of a townhouse in a brand new development that offered zero dollar down, fixed interest, and a 30 year mortgage. However, I was not the owner of any furniture. I couldn’t even afford a bed with more than 40% of my paycheck going towards my mortgage. It took the first nine months of residency sleeping on an air mattress, which doubled as my sofa, until I could could finally buy a bed.
Fast forward two years… its 2008 and I’m sweating bricks! I started noticing a flurry of “For Sale” signs in my development. Why were people selling their houses so soon after buying? By 2010, the value of my house had dropped by almost 60 percent!!! Unfortunately, my mortgage payments were not cut by 60%. Basically, I was paying too much on a house now worth less than I was paying for it. I thought houses were always supposed to appreciate. This housing boom was now crashing!
I was completely underwater on this house. To make things worse, I was planning to move to expensive Miami a year later for a fellowship which was not going to pay me much more than I was making. How was I supposed to afford my mortgage and rent in Miami at the same time? To sell the house, I would have to pay thousands of dollars to the bank for the difference between what I bought the house and what it was now worth. I could walk away from the house and foreclose, but my credit would take too much of a hit. Boy, why didn’t I just rent a cheap place and save for a house that I could actually afford and planned on living in long term? Talk about regret!
The lessons here: 1) Consider renting for at least a year to discover if the new job transition will be permanent. 2) Dave Ramsey’s rule of keeping the house payment less than 25% of your monthly income is a rule to live by. But in the meantime…
Time was ticking and I was stressing ! I made a plan to rent my townhouse while I was in Miami, then move back to into the house in Atlanta a year later. Yeah… umm.. the joke was on me. Let’s just say that renting and owning are totally different. In part two of this post, I’ll go into the nightmare of being an accidental landlord and why being desperate to rent my townhouse in Atlanta while living in Miami cost me in the long run. You’re gonna wanna see this!