A college friend called me today to talk about a work trip to Texas. I was glad to hear from her. Then came the bad news. Her house had been foreclosed. I thought I didn't know anyone who had been foreclosed; I guess I do.
This friend got a good government job in DC out of college (about $60K). She got house fever about 2.5 years ago, making statements like she would "never be able to afford a house" and she was "throwing away money." She decided to buy a $350K condo in North Virginia with $20K in "upgrades."
The loan was 100% financing, and she only got approved because her boyfriend promised to pay $750 rent. (This kind of loan no longer exists, for obvious reasons.) I thought this loan was a horrible idea because of the rent. She actually hung up on me because I said that out loud to her. But that turned out to be the least of her problems.
This house was not on public transportation, so her free subway pass turned into a $100/month garage plus gas plus an hour each way (YUCK). Her boyfriend dumped her and moved out nine months later. I knew that back then, but I hadn't really talked to her since.
In a normal housing market, if her boyfriend left she could have sold and just walked away from this mess with a $15K ding. But not this time. She had gotten ripped off on the house. She used a realtor from the selling company. She fell for all the upsell. She paid more than anyone else in the condos. AND, the part that I didn't expect:
the condos were down in value, way down.
She was underwater $40K on the house, it turns out. The bank sold it last month, she moved in with her parents, 1.5 hours north of DC in Maryland, and she still owes the bank $40K plus a pile of fees. The upside is that she hates living with her parents so much that she volunteered for a lot of business travel, which pays a bit more.
She sounded so defeated that I wish I had been wrong about gambling on your boyfriend's rent on a 100% financing loan. But how could you say that out loud and think it is a good idea?
6 comments:
Sad story. I am dealing with Toronto condos and I have been through similar cases. Main problem is, that realtors should not only help to find the house, they should also be advisors in matters of financing. But unfortunately, that's not often...
I too bought a condo with a boyfriend. Do I regret it? Yes, looking back I tell people not to do it. Not because it could drop in value, but things can get very contentious when you are living together and having to "break up".
I always mention it's my "worse" mistake.
Amazing how people make decisions based on, 100% boyfirned financed house hmm..I guess having your "own place" can be so appealing that people do stupid things
I should add that I married my boyfriend, sold my condo for a large profit, and put down 10% and paid off the extra 10% within another 2 years after buying.
But it's STILL a really bad idea. Hey I got off scott free, but still, I mention how stupid I was.
Granted we were engaged but I don't think it makes a huge difference.
Ironically, right now, I would love to have a 100% financed loan for my house. This would allow me to control the property with little money...and it's all about control. This kind of loan allows you to keep the equity separate from the property, which is the safest place. A great strategy is taking the difference that you would have been paying for a traditional 30 yr amortized loan and put that money into a safe, liquid, interest earning account. That way, you'll be in control, not the bank. Check out http://www.stewardsofwealth.com/ for alternative ways for creating wealth. You'll find that the rich do the complete opposite of the poor and middle class. Brain on!
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