Day 16: House Insurance Doesn't Cover Anxiety!
by Edward Smith
21 Jul 2020
Knowing Something Smart Doesn't Prevent Stupid
In my last article entitled 🤠How to Avoid Being a Fruit: Stop Comparing Yourself to Apples and Oranges, you learned why I wanted to purchase my first house. Doing it was a great life lesson, but it came with some scary extras, and I could have done the whole thing a whole lot better. In retrospect, I wish I had, because it would have saved me a lot of sleepless nights.
Letting Emotion Cloud a Clear Head
By 2012, I had already read Dave Ramsey's Total Money Makeover Book, and so I didn't really have any excuses for what went down. I knew a few things when it came to buying a first home.
I was supposed to put at least 10 to 15 percent down as a down payment. I was supposed to only buy houses with monthly payments that did not exceed 25 percent of our monthly take home income. I was supposed to take out a 15 year mortgage if I couldn't pay for the entire thing using cash.
We had a whole bunch of supposed to's in stock, but we never used them like we were supposed to.
Emotions Can be Stronger Then Math. Trust Math!
When we decided to buy our first house, we crunched the numbers. To make it work, my wife and I, working together full time, could only afford a house that was worth $500,000 or less, and that was only if we were willing to take out a 30 year mortgage to do it.
Obviously a lower house price would have been better. A higher price was pitting us against our absolute maximum limit, which meant things were being set up to become harder, and things were more likely to fail. That's how you take a great idea and turn it sour.
Paying Too Much For a House Isn't Smart
Yo! I hear ya! $500,000 is a ton of money, but it didn't look that way in that town. When everyone else is being crazy, crazy starts to look normal. We didn't live in a place with houses that sold for less than that.
California's real estate market was super inflated. It was not the place that new dreamers made dreams come true. It was a place where foreign millionaires bought beach huts, tore them down and built multi million dollar hotels and mansions.
It was an older person's town. Set up to provide high priced commodities to an elite group of people with money.
There were no rules or regulation. Prices for homes were allowed to climb up as high as people were willing to pay for them. You competed against everyone, and everyone else paid cash money in amounts you probably hadn't seen in your entire lifetime. Money spoke, and house sellers listened.
We were just two young people looking for their first home. We didn't have that kind of money, so we had to look where others wouldn't.
Choosing to Get Eaten Alive
After several long months of searching, we got a lucky break. We found a small 1,000 square foot, single story, three bedroom home, built back in 1947. The owner sold it to us for $535,000, which was well above our comfort level, but we decided to make it work.
A home that size would probably sell for around $300,000 in a normal market. We weren't living in a normal market though, so we weren't given the choice of paying a normal market price. It was either this or go back to renting. We were emotional, and decided to go with a house.
It was the cheapest, best thing on the market. It was in good condition, and it was something we could get if we were willing to stretch a little past our comfort zone. It was located in a safe neighborhood, next to all of the good public schools, and we were able to close on it, because the house was small and most of the other buyers wanted something a little bigger.
The Question Here. Was it a Good Idea? When You're Choosing Between Renting and Owning, You Don't Have to Own Your Own Place. Do What is Smart For You.
We Decided to go with Home Ownership. Was it smart for us?
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