Money Mistakes: Too Much House

Welcome back to another edition of Money Mistakes where we find out that even the “experts” make money mistakes too. The important thing is to learn from these mistakes and hopefully avoid them yourself!

Tell us a little about yourself

Hi, I’m Theresa. A blogger and personal finance and investing enthusiast. I help professional women take control of their finances and investments. 

What was your money mistake and when did you make it?

Let’s go back to the year 2006. Perhaps as a 26 year old, I was distracted by Google buying YouTube or the emergence of the Swine Flu (I’m a nurse too). I don’t know. But I bought a house that cost about $80,000 more than what I could reasonably have afforded.  

Rather than purchasing a home that was less than 30% of my take-home pay, I bought the biggest house that the bank would give me without a 20% down payment. This led to Private Mortgage Insurance (PMI), a higher mortgage payment than I was expecting, and working overtime for spending money.  

At one point, I had second thoughts about the purchase, but I had given $2500 in earnest money and thought I had to follow through with the purchase. 

Within one year, I lost more than $50,000 in home equity because of the housing crisis. In a house I could only barely afford to begin with. It was a nightmare.

What led you to making the mistake?

Looking back, I see that I had a little case of keeping up with the Joneses, and I was a victim of the 2007-2008 Financial Crisis marked by lax lending standards and inflated housing prices.

I didn’t take the time to learn more about mortgages and the extra costs of homeownership. I never dreamed the value of a house could go down. I assumed housing prices always went up because I was naive and uneducated about home investments.

How did you recover from it?

I kept the house and refinanced it 2 years after the crash when interest rates were super low. I had enough equity in the home by then that I didn’t have to get PMI again, and I cut the payment by $500. I could finally breathe again. 

When I relocated because of work, I kept the house and rented it because it was still upside down from the $80,000 loss in value. 

Today, I still own the property. I continue to get the rental property tax breaks, and I have over $100K worth of equity in the house now.

What would you have done differently?

I would care a little less about what other people thought of me and my buying power. Just because you can do something doesn’t mean you should. I never got the kind of joy that a home should bring you. I always wanted more when I was in the house. I wish I could have been happier with something smaller with all of the niceties that I like. Unfortunately, I was so house-poor that I could never afford to do any upgrades or buy nice furniture for my big house.

How can others avoid the same money mistake?

Do your homework when it comes to making a big purchase. Don’t be scared to walk away from something just because you have invested a little money. Sometimes you lose more than money when you stay invested in something you never wanted. It’s never a loss if you learn from your mistakes.

Most importantly, what did you learn from your money mistake? 

I learned the importance of doing homework before making big purchases. I learned to wait for the right deal for me.

Anything else you want to say?

You are your biggest competition. Stick to your budget. Less can be more. Always do what feels right for you and shut out the outside noise.

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