That time being responsible was dumb.

For three years Girl Ninja and I worked diligently to build our savings account up to $100,000. If you didn’t know, we picked $100,000 for two reasons. First, it sounded super sexy. Second, it would give us the ability to put 20% down on a home priced up to $400,000 (leaving $10,000 for closing costs/furniture and $10,000 for our emergency fund).

By April 2013 we hit our $100,000 savings goal. Two months later we put in our first, and only, offer which resulted in us buying our current $350,000 house. We locked in at a 4.125% interest rate, have a reasonable PITI payment, and a renter that pays us $400/mo to live in our basement.

Being responsible came with the following benefits: 

    • We don’t have to pay private mortgage insurance
    • It made our offer very competitive since sellers like cash
    • We had immediate equity in our house the day we moved in.

That said, I’m not convinced responsibility is necessarily the best choice. What would have happened if we started our house hunt when we would have had less than a 20% down payment?

Well…

We could have taken advantage of what pretty much everyone knew were the lowest interest rates we’d ever see. Somewhere around 3.3%. Instead, we locked in at 4.125% which means we pay $120/mo more in interest than some of our friends who bought in 2012.

We could have taken advantage of better inventory. By August 2011, we had $50,000 banked. Had we started looking then we would have had 4 months of inventory to pick from. When we actually started looking in early 2013, there was only 1.5 months of inventory. Meaning we had a SIGNIFICANTLY smaller selection of homes to pick from. Which in turn meant every home that we did look at went for OVER asking and had multiple offers on it (including the home we bought).

We could have taken advantage of lower prices. Between 2011 and 2013 prices jumped 10%+. This means we could have gotten a $350,000 for about $315,000 back in 2011. Normally calling the bottom of a market is pretty sketchy, but just about every one and their mother knew in late 2011 early 2012 we were virtually bottomed out.

 

So as you can see, being responsible is not always the responsible thing to do. In our case, it’s literally costed us tens of thousands of dollars.

Long story short: Being irresponsible isn’t always a bad thing.

 

11 thoughts on “That time being responsible was dumb.

    • Yes, however, I pretty much knew when interest rates were in their low 3’s that that was likely the bottom, and when real estate prices were at 2011 levels I wasn’t expecting further drops. My vision was pretty close to 20/20 as those two things were occurring.

      Inventory, or lack thereof, totally caught me off guard though 😉

  1. Yes, it might have been cheaper in 2011, but then you didn’t seem like you were ever really wanting to buy a house. So we just have to roll with our current situation. Plus you would have been stuck with PMI of more than $120 a month and perhaps if you went with FHA you’d have PMI for the entire life of the loan. As for prices, just think about how your investments grew even faster than the 10% of the housing market.

    • Dave you are correct that PMI is usually adds between 0.5 and 1% so you usually end up paying more overall with the lower interest rate+ PMI.

      I want to add that as someone who bought a house in 2011 no one other than FHA was doing anything other than a conforming loan (20% or more down) and the red tape of an FHA is not worth dealing with. One friend who went FHA lost 2k in earnest money when the FHA inspector didn’t fund the loan because the seller wasn’t willing to fix some minor problems so FHA wouldn’t fund the loan.

    • Don’t forget PMI would have gone away after a few years, especially with the way the markets have been.

      The higher interest rate I’m paying I’m stuck with for the life of the loan.

  2. None of us should ever choose FHA. The upfront premium is high and unique to FHA and the monthly PMI rate is double the conventional rate if you have good credit.

    And the other poster is correct about it going for the life of the loan in almost all cases.

  3. Hindsight is 20-20.

    Maybe the interest rates would go even lower while you waited. Maybe if you saved $300K, you could have bought that same house for $300K, not $350K – cash

    Maybe, maybe, what ifs. Look at life and do the best you can. You have a renter paying the extra interest. If you bought earlier, maybe you would not have a renter.

  4. Sometimes you can’t turn back time. I wish we could have had the money to invest during the down market but we were just broke college students living month to month. We have to do what we with what we have, right? We could have bought a house earlier. We could have paid PMI, but we decided to wait.

  5. That’s why I bought with 10% down in Jan 2013 – I could see the rates were going to go up, prices were already starting to bounce up quickly (in Portland), and I knew that the price/expense increases would outpace my savings ability. I found a lender that doesn’t charge PMI, which was the deciding factor.

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