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Welcome to our new blog series about those money blunders of the past. Specifically, the ones that have made us older millennials, who came out of college in the mid-2000’s, who we are today. Learning from the trials and tribulations of others can be beneficial, right? Stories like these crop up all the time these days, about those 30-something year old people who wish they had done things differently in their 20’s. Each post in this series will feature different fictional people, who had to deal with very real financial missteps.

The #1 money mishap on our list…buying a first house at the wrong time. This is the story of Alex and Taylor.

First, a little background:

When Alex and Taylor first moved to the city after college in the summer of 2004, they rented a little apartment in the trendy part of town. Just a year later, they decided to start looking for a place to call their own. Why so soon? Well, for lots of reasons. First, they weren’t planning on leaving the city, and had in their minds that if they were going to pay rent each month, they might as well pay a mortgage instead. And there was that lingering social pressure/expectation that once you have a steady job, and you’re ready to settle down, why not go ahead and purchase some real estate while you’re at it.

The buying story:

If you can’t quite recall, 2005 was near the peak for the American housing market. Sellers could pretty much get whatever they wanted for their houses, and then some. As soon as a property came up for sale, people were lined up to snag it, and offers were being signed on the hoods of realtor’s cars. Alex and Taylor were right there in the mix along with everyone else. They put a high offer on a little three bedroom in the city, didn’t force any issues with the home inspection, and had themselves a home.

The mortgage:

The couple’s first mortgage experience was interesting, to say the least. Alex and Taylor were those people who didn’t have any cash for a down payment. They wrapped the closing costs into their note, and had to take out two mortgages to cover it all. They barely had enough of a credit history to get the loan in the first place. Their interest rate on the first mortgage was crummy, and the rate on the second was even higher. But they ran the numbers and did some basic budgeting, and determined that they could, in theory, cover the monthly mortgage payments.

Houses are expensive:

Just like other first-time homebuyers, there were many things this couple hadn’t thought about from the financial side, because they didn’t know any better. These two realizations caused the most heartburn:

  • Utilities are expensive, and the bills fluctuate with the seasons;
  • Stuff breaks, and as the homeowner, you’ve got to find the money to fix it all.

Alex and Taylor’s budgeting projections were way off. It seemed like every month, something else was more expensive than they had planned for. To top it all off, the housing market crashed soon after they bought the place. Their property value plummeted right along with everyone else’s. A couple years, and a couple kids later, they decided to put their first house on the market, and move to a home that had a slightly bigger footprint. Unfortunately, their first place sat on the market for a few months, with no offers in sight. They ended up having to convert it to a rental instead.

What they learned:

A lot. They learned a lot, and learned it the hard way. They learned that houses are a huge investment, and buying one shouldn’t be taken lightly. They learned that when you budget for something, you had better pad those numbers, because you want any surprises to be good ones. They learned that just because you can get preapproved for a loan doesn’t mean that’s what you should spend. And finally, with hindsight being what it is, they learned they should have waited to buy their first place. Renting was just the better way to go at the time. The stress of being financially strapped was a hard thing to handle, for sure.

 

Next up in our money mishaps series…not saving for retirement right out of college. Stay tuned you guys!

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