Last night I stayed up far past my normal bedtime talking about underwater houses and foreclosure on Twitter and it reminded me of when Mr. Monkey and I were faced with making the tough choice about what to do with our house in Arizona after we moved to Iowa and how it seemed like there were not a lot of first hand accounts of what happens when you have to walk away from a house you once loved.
So I’m going to write what happened to us and share the kinds of things I wish I had known back when we were so far underwater with a house that we needed scuba gear to see the surface.
In 2006 Mr. Monkey and I were living in Arizona. We had jobs that at the time seemed stable. We had just finished paying off all of our credit card debt (BEST.DAY.EVER), were building some modest savings and were watching friends left and right buy homes. I wanted to buy a house, my first house. Mr. Monkey wanted to wait a bit, to build up more savings, but eventually we decided to look. We went to a mortgage lender who said that we were pre-approved for $250,000, which we knew was crazy for us but she assured us that we’d be able to refinance in six months or a year at most because house values were increasing so fast. We, thankfully, kept a level head, said no thanks and went to a different lender and got pre-approved for a more modest $210,000.
In short order we found a great little house in an incredibly stable older neighborhood (seriously, I think that neighborhood maybe averaged one house for sale every 5-7 years). We purchased for $205,000 and did an 80/20 loan with no down payments. We had some savings but decided to hold on to it for emergencies instead of using it for the house.
We settled into the house and every month I dutifully sent in two mortgage checks, always paying a bit extra to try to pay down the 20% loan. We were happy and the house was an easy fit for our budget.
And then things started to change. The housing market began to slow down and Mr. Monkey and I’s job started to seem less stable. We began to think about moving for better career options, something we’d discussed but thought was five years or more away. Soon though I was offered a great job here in Iowa and we moved.
When we decided to move, we talked our real estate agent and he told us he’d probably have to list the house at $160,000 to get any interest. We were a bit shocked. Nothing in our neighborhood had sold for less than at least $200,000 in five years. Hold on to the house for a year, he said, and rent it out. The market will gain some ground back.
So we signed up with a property management company and rented the house out. Because the rental market was filled with houses (probably owned by people just like us) the best rent we could get was about half of what our mortgage was. We’d be losing $800 a month. Okay, we thought, we’ll lose the $10,000 for the year we carry it but we’ll save our credit and “do the right thing”.
A year passed. The market continued to nose dive. We continued to lose money every month. We were trying to build our savings, which was down to levels that were concerning for me but paying rent and the mortgage was a tough balance. We maybe got $300 a month into savings and kept sending $800 to a house that was worth less every month.
(On a side note, you know that whole “rent is throwing money away” line? Bullshit. Paying money for rent is nowhere near as depressing as spending money on a house that is worth a fraction of what you bought it for. All that extra money I faithfully paid on the mortgage for three years. TOTALLY WASTED).
We began to have to think about our options. I should note that at this time in my life I had literally never paid a bill late and had a credit score that would have given Suze Orman herself a tingly feeling in her pants. We called to see if we could do a loan modification but couldn’t because we weren’t living in the house anymore. We called the mortgage company to see about a short sale and they wouldn’t talk to us about it because we weren’t behind on payments. We talked to a real estate lawyer who said that in his 35 years of practice he’d never seen a market this bad and to plan that it would take 10 years for it to recover and houses to go back to 2006 prices.
Ten years of losing almost $10,000 a year for the hopes of breaking even?
No freaking way.