My daughter called me last night as she usually does at the end of her work week. It gives us a chance to catch up with each other, share interesting stories, discuss frustrations, and basically maintain our close relationship in spite of the thousand miles that separate us between face to face visits. I look forward to hearing about her week and whatever new is happening in her life. Unfortunately just as we were beginning our conversation, friends that we had invited to share our Martini Friday with were just pulling into the driveway. I explained the situation to her and she readily agreed to call back in the morning when we both had more time. True to her word, she called just as we were finishing our breakfast BLTs. Turns out she is seriously thinking about buying her first home. At 29, several of her close friends have recently made the leap to home ownership. She has done her research and thinks it may be the right time to join the ranks of home owners. Obviously, this is an important decision and I want to be there so she can bounce her questions and concerns off me and her Dad, but ultimately, it is her decision to make.
Our conversation did get me to thinking about when my husband and I decided to buy our first house 35 years ago. We weren’t married at the time and did not live together until we closed escrow on the new two bedroom townhouse in a large development in Southern California. I was 26 and he was 30. Although we both had steady, full time jobs we did not have enough money in the bank for the requisite 10% down payment for this entry level property. For a number of reasons, not the least of which being that lenders were hesitant to take on unmarried couples, we decided to borrow the down payment from my parents and make the purchase in my name with my folks as co-signers. Adjustable Rate Mortgages, or Renegotiable Rate Mortgages as our lender identified it at the time, had only recently been allowed as a result of deregulation of the Savings and Loan industry signed into law by then president Jimmy Carter in 1980. When I look back at it now, it is hard to imagine that we thought an initial interest rate of 15.5%, that could be adjusted to a maximum of 20.5% (or a minimum of 10.5%) was a good deal. But we were excited by the prospect of becoming homeowners and were more concerned with the monthly payment, which we decided we could afford. So the paperwork was drafted and signed and we moved into our first place.
It turned out that the loan agreement was even worse than we thought. We should have spent a little, no a lot, more time on the fine print. By the time we sold the townhouse seven years later and moved our growing family to a four bedroom ranch-style home in the foothills, we were paying nearly 18% interest on the loan. And to add insult to injury, we actually owed more the end than we had originally borrowed. Thankfully the appreciation allowed us to walk away with a small profit. Since then we have negotiated several loans and refinances and we are much savvier about the process. We take our time reading and understanding the details of each loan and shop around for the best terms. I guess the best thing to come out of our own experiences is that we can share these potential pitfalls with her.