How Skipping One Phone Call Cost Me $100k
I hung up the phone and told my wife…”the landlord died, and her kids are going to sell our house.”
My wife was close with the landlord, but grief aside, we knew this was going to put us in a financial pickle.
You see we live in the hottest housing market in North America and due to the fact that the lady who owned our house was a very reluctant landlord, she hadn’t really raised our rent in 4 years, despite the fact that the value of the home we were renting (the main floor), had risen from $150k to $420k.
When I hung up the phone I knew that the likely scenario would be, once the house was sold, the price of our rent would be brought into line with the market. LikelyÂ our rentÂ would triple.
After a sleepless night, I realized that this was an important moment in our lives. Living in this city, where property was appreciating at 50% a year, with no end in site; it was a time when the rich (primarily people who owned houses) were getting richer, and the poor (tenants) were getting poorer every day.
I felt like I needed to decide if I wanted to be rich or poor…obvious answer right. If I wanted to not be poor, we needed to purchase a house…ASAP.
Prices were rising almost 5% a month. To put that in perspective that’s a $20,000 a month increase for a $400,000 home.
I told my wife (who is a complete greenhorn when it comes to things like mortgages and loans), to call a mortgage broker. Tell them the following and ask them what we can afford:
We have no money for a down payment.
We have no income.
We have good credit.
Without going into too much detail, my wife is on leave and I am working on a business startup that isn’t paying me at the moment.
The mortgage broker, after requesting our tax returns for the past 2 years (and we didn’t make much money then either) answered:
“I can get you $300,000″
After much shopping and a couple bidding wars we grabbed a low end, but decent condo for $205,000.
Due to the fact that we had stayed well within our means, she was able to lock us in for a 5 year term at only 5.24 %.
Good News Bad News
While I was amazed at how it all worked out, since our monthly payment will only be a couple hundred dollars more than it is currently (which if you consider the 5% appreciation still nets us a very healthy increase in net worth every month) I also experienced wanting to give myself a big kick in the butt.
Why hadn’t I thought of calling the mortgage broker before!!! Three years earlier I had looked at almost the exact condo (actually a larger one in the same building) that was selling for $107,000 and I thought I couldn’t afford it.
If anything, my situation was better 3 years ago than it is now as I had a full time government job.
I had been trained to think that you got a mortgage from a bank and it wasn’t until a friend mentioned that they had used a mortgage broker to get a loan that I realized there was options.
That ignorance of my real options cost me over $100,000.
Better late than never is all I can say.
The Morals of the Story
- Being a home owner is the only realÂ hedge against massive increases in property values.
- In a rising market there is more pressure to own.
- LendersÂ (with the help of a creative mortgage broker) will lend money to almost anyone.
Here’s hoping that the market continues to rise. Borrowing atÂ 100% equity is very risky and many people in the recently popped housing bubble in the U.S. are finding that factÂ out the hard way.
Since I am an experienced investor, I did do quite a bit of due diligence to confirm that the market conditions that are propelling housing prices in my city are stable long term trends; but there is never a guarantee.
Fingers crossed; but at least I’m in the game!