Thursday, February 19, 2009

Being Smart Isn't Enough

I thought I was smart. I thought that when I bought a house I would pay about three times our annual income. That used to be the rule, right?

When the real estate agent showed us the only four-bedroom houses (we have five children) available in that price range (this was Las Vegas in 2004) I wanted to cry. We ended up paying over five times our annual income and had to get an interest-only ARM to do it. I didn't sleep well for two years until the pay-off penalty expired and we could refinance. Why did we have to do this? Because everyone else was doing it. The banks were loaning too much money to anyone who came along, and so since people could pay that much for a home they did it.

Well, having survived that adventure, I thought I'd just keep being smart and stay out of any more trouble. We had a fixed rate mortgage and a good steady income, so I went about saving a little money when I could, never buying anything on credit, keeping my pantry well stocked, turning the thermostat to 62 in winter and 86 in summer, and avoiding unnecessary use of my gasoline powered vehicle.

Now, as a direct result of the economic recession, my husband, who works for a state college, is being laid off due to budget cuts. Yes, I'm glad I did all those smart things because we're better prepared to be laid off. On the other hand, I can't help but think that we wouldn't be laid off right now if everyone else hadn't borrowed more money than they could pay back!

From now on, it's not good enough for me to be smart. I have to convince other people to be smart too.

5 comments:

Pmom@ChocolateandGarlic.com said...

Rebecca,

I am so sorry to hear that your family is being so directly affected by the recession. The hardest thing about our nation's troubles is the helplessness we all feel. My family hasn't been directly impacted yet, but I know that if we are, it will be due to circumstances beyond our control--things I can't do anything about. I can save sup some money, but there is nothing I can do about the larger economic forces that will determine whether my husband's industry continues to spiral downward and whether he keeps his job. It is scary. Hugs for you and your husband and family.

beth said...

When my husband and I started looking for a home a few years ago, we were given approval for a loan that was really twice what we could afford. And it was tempting to take that loan. But I worried--a teacher doesn't make much, and if one of us lost a job, we'd lose the house. So we turned down that loan and bought a smaller house for less money. Good thing, too--my husband found out today that he's been laid off. (It's because of the recession, too--his company makes metal parts, but the people who commission the company to make metal parts aren't selling as much stuff, so they aren't buying as many parts, so the compnay Cor works for doesn't need as many employees.) We won't lose the home, but making ends meet is going to be tough.

I'm with you--I wish people could be smart enough to know what they can and cannot afford, and have the restraint not to send the economy crashing!

Rebecca Mother of A Tribe said...

Oh, Beth, I'm sorry about your husband's job. We just went through that so I know how you're feeling. You can tell yourself it is just a job, but it still hurts a lot. Give yourself some time to grieve. For me, it felt a lot like having a close friend pass away, especially since my husband really loved his job at Nevada State.

Kimbooly said...

When we looked into buying a home in CA, I was *flabbergasted* at the home-buying prices and process.

If we had bought a home, we would have truly, truly maxed out at a little $300K 1 bedroom condo.

And that would have been with an INTEREST-ONLY loan. At first I thought people were crazy to entertain such a thought.

But when we were looking, and it was the only possible option, I considered it as well. I was thinking I would quietly try to sock away a little money at the principal (sp?) on the loan. But looking back, how would I have done that if we were completely maxed out already?

We definitely would have lost our home if we had done that.

So, every month, I just cringed for a couple of years, at letting go nearly $2000 a month to rent a townhome (more than 50% of our "must haves" category, which includes food, shelter, insurance).

But over time I just can't believe how blessed I feel. If I had bought a home, I would have been LOSING $4000+ a month simply from depreciation.

Within about two years, I started feeling like I've got a "steal," since any other 1400 sq. foot places rent for $2100-2500, and we pay $1725 because our landlord hasn't raised the rent in 4 years.

But then again, Rob nearly lost his job a couple months ago (he was on the list but his bosses went to bat for him and kept him on), and they had to let go two more really good people a couple weeks ago.

Without income, and this time around, without a very good emergency fund (we completely depleted ours the last time Rob lost his job, and spent 3 years before we could even begin to start saving at all, including even putting anything toward a 401K or our IRAs), we wouldn't last maybe 3 months, even though we have some good food storage.

Frozen Cacti said...

Good luck convincing millions of people to be smarter!