When we purchased our home at the end of 2001, we figured it was a starter home...we'd live in it for a couple of years and then move on to a bigger home or a home in another area. We paid about 10% down, paid closing costs on a 30 year fixed interest rate mortgage and figured we were good. Later, as the housing market rose, we refinanced at a lower interest rate (without pulling out any equity), and since the equity had increased, we were able to phase out PMI.
Fast forward to 2009. We're still in our starter home, and we recently had an opportunity to potentially move out of state. However, because of all the news about the housing market, I wanted to talk to a realtor before we even started making any decisions. We found out that we are "underwater" on our mortgage with the potential to owe about $25,000 out of our pocket to our mortgage company, realtor, and state in taxes! Wow...I was amazed that it was that bad. We have a lower priced home to begin with, we have a "normal" 30 year fixed mortgage, we didn't pay PMI because we "had" 80% equity in the home. Plus, we didn't even buy at the peak of the market, either.
We live in MI, which has the highest unemployment rate and a really high foreclosure rate. About half the homes on the market in our area are bank-owned homes. They are pricing those homes really low, but unfortunately those are the homes we have to compete with.
Our experience with the realtor left me feeling that we had somehow mismanaged our finances...but did we? When I look back, I can't say that we could have done anything better. We went for the conservative fixed-rate mortgage (even when we had friends suggesting we go for the ARM), we put a fair amount down on the house, paid PMI rather than taking out an 80/20 loan. We even purchased a lower-priced home knowing that I would be quitting my job in a couple of years when we had kids. We probably could have saved for a larger down payment on the house, but at the time we were paying off my student loans and really focused on that.
So, what does knowing we're "underwater" teach us? A home is not always an investment. For years, people bought houses thinking they were an appreciating asset. They did not feel like the prices could go down as low as they did. We are thankful that we can pay our mortgage, we don't HAVE to move (so we can wait for prices to appreciate to a more manageable level), and if we really did have to move, we have an emergency fund built up that would probably cover any deficit that we would owe (but wipe us out).
How to determine your own home price - The best way is to call a realtor if you're seriously thinking about making a move in the future, but another feature to see the trend of home prices in your zip code is Zillow.com. Click on the Local Info tab, and you'll see all kinds of information about home prices in your area.
How is the housing market where you live? Are you "underwater" on your house? If you're thinking about moving, have you talked to a realtor to fully grasp what your situation is? Any tips for us (other than stay put)? For more frugal tips, please visit Life as Mom.
Photo by cjcj
Michelle
Great lesson! I know there were so many times when I itched to buy my first home. Especially when I saw home prices growing and growing but I am happy that we stayed renters. We are still in debt payoff mode and while we now pay a somewhat high rent for a 4 bd 2 ba rental home it is still hundreds less than what our mortgage would be. We were able to relocate out of state for a good job opportunity for my husband and didn't have to worry about the strings attached to selling a home in a down market. Homeownership is a great thing but I know we won't be ready for a few more years and that is OK by me.
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Debra
We just finished refinancing our house and I was shocked at what it was appraised for. We are not underwater but we don't have as much equity as I thought. We live in Arizona where the housing market has pretty much crashed so I guess it's to be expected. Like you, we bought a smaller house than we could have, we put down 20%, bought our home 10 yrs ago, but we're still not in a place we were a few years ago. I hear it everywhere. You & I are the lucky ones. You did nothing wrong. I would stay put if at all possible. Things will come back eventually - we have to be patient - something we didn't have to do in the past. A new lesson. I am glad I found your blog. I look forward to visiting often. Best of luck w/ your housing decision.
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Tia Y
No advice because we are in the same situation as you are. We bought low, a foreclosure as a matter of fact, and are under water now. Our area has seen this low before. In the early 90's when aerospace - which is the main source of employment in our area decided to pack up and head east many employees walked away from houses to keep their jobs in new states and the flood of foreclosures and the loss of area jobs drove our area down down down. I know we will see it climb a little again but I hope we never see the ridicules situation that the market had hit at the high.
Know you and your husband made the best educated decisions based on what you knew at the time, pray about what your future holds and do what you feel you are called to for your family in the long run. That is all any of us can do.