Within the last 18 years I have owned 5 houses in three different states1. Watching mortgage rates increase so dramatically got me to thinking about our past mortgages.
We bought our first house because I couldn’t find an apartment I liked. At the time, we lived in Louisville in a 2-bedroom apartment that had an efficient layout and was an easy distance from almost everything except my new job which was an hour away in good traffic. We looked at a map and determined that Longmont would be a better base location, still relatively close to Boulder but also 20 minutes closer to my library. However, all the apartments I looked at wasted a lot of the square footage on hallways instead of living space.
Somewhat on a whim, I started looking to see if we could buy a house instead of rent. This being 2004, before the housing crash, the answer was yes even though I had been working for less than a year, Jaeger’s company was financially shaky2, and we had no down payment. We were also considerably more naive than now. I don’t remember if we were “pre-qualified” or “pre-approved”, probably the former, but in any case, we started looking at houses. It took a while to find a house we liked and the buyer agreed to our offer. This was back in the dark ages when only some of the houses had online photos and those you had to get through a broker’s special website. However, eventually we found a very nice 3-bedroom house that had a tiny yard but backed up to a green area that kept our house from immediately backing up to the house behind us. We didn’t realize it at the time, but the house also required the least amount of maintenance of any house since. Fortunately for us given we had no extra cash to spare.
We found the house but had no down payment so needed to figure out how to buy it. I remember sitting in the mortgage broker’s office, the first and last time I ever did that in person, and him trying to convince me we should get a 3-year ARM. I do not like uncertainty and didn’t want an ARM but I don’t recall being given the option of a fixed rate mortgage. I countered with a 7-year ARM, which is what I thought we had agreed on. However, this was back in the day before home buyers automatically saw documents prior to signing. When we got to the signing, which in Colorado involves the buyers and sellers being together in the same room, the escrow officer asked if we had seen our loan docs ahead of time and we said no. She looked at us in moderate consternation and proceeded to quickly summarize everything. It was at this point I learned that we didn’t have a 7-year ARM, we had a 5-year ARM. It turned out that we also applied for a home equity line of credit which took care of our 20% down payment3. I was a bit perturbed but the signing felt like it was too late to back out so we signed4.
In any case, we did buy the house and it was really exceptional to have our own home that allowed me to make changes whenever I wanted. We got our first house bills and the main mortgage amount seemed right but the second mortgage payment seemed way too small for the amount of money we had borrowed. I got out our loan docs and read through them carefully. With dawning horror I finally realized that our home equity line of credit was a 10-year, interest-only loan, that never paid down the principal amount and the interest rate adjusted monthly. Fortunately, I’m good at math. I created an amortization chart to estimate how much extra we’d need to pay each month to pay the loan off in 10 years. Almost every month the interest rate on the second mortgage increased. It started at an introductory rate of 4.00% and after 6 months jumped to 7.00% and after a year was about 8.50%. At about the one-year mark I finally investigated other options and we refinanced it into a 5-year home equity loan at 8.299% which we paid off several years early. We eventually refinanced our original ARM, with a five-year rate of 6.125%, to a 15-year fixed rate mortgage with a rate of 4.25% (though we did pay points for it).
After Calvin was born my boss agreed to let me work from home instead of commuting to Greeley every day. When Calvin was about three, Jaeger convinced me that we should move closer to his job, since I no longer had any commute. I didn’t really want to leave our first house, it met all my needs and was feasible to pay off within a relatively short amount of time. However, I had to admit that the commute wasn’t fair. Thus, we listed our house for sale and started looking closer to Jaeger’s work.
However, this was in 2012 and the housing bubble had definitely burst. While housing had recovered a bit, I knew our house wouldn’t be easy to sell. While we had a realtor helping us, I also read several excellent books about selling houses: Seven Steps to Sold, How to Sell a House Fast in a Slow Real Estate Market, and Home Staging that Works5. The home staging book, in particular, made a significant impression on me. We didn’t hire a professional stager but I did follow the staging recommendations scrupulously. While showing our house to potential buyers, we were also looking at houses in the Boulder area.
Eventually, we found a house we liked and put an offer in on it, even though we didn’t have a seller for our old house yet. Fortunately, a couple did put in an offer on our house that we chose to accept. We sold the house for about 7% less than what we had bought it for. However, the low housing prices probably benefited us in the long run as Boulder houses were also cheaper to buy. We had a slightly better idea what we were doing with our second house. Among other things, we had a down payment from paying down the principal on our first house, and we saw the loan docs ahead of time. This time we got a 5-year ARM with an interest rate of 2.75%. I still didn’t love having an ARM but at that time the fixed interest rates were significantly higher and running the various amortization charts it was obvious that the ARM was a better option.
The Boulder house turned out to be one of my favorite houses. However, when Jaeger got laid off and then offered a job at Google in San Francisco, we sold our house and moved again. With our second house we got really lucky and sold it for 42% more than we had bought it. This is the only reason we were able to buy a house in San Francisco. Yes, Jaeger’s stock helped but we still wouldn’t have had the down payment without the sale from our Boulder house6. We rented in San Francisco for almost a year before deciding to buy.
In many ways, house hunting in San Francisco was more fun than anywhere else because of how ubiquitous the open houses were. I spent many fun weekends walking from house to house without having to go to the trouble of making an appointment ahead of time. Also, San Francisco has some truly weird houses. I still remember the basement that obviously had been an illegal apartment and they made it legal by pulling out the walls but leaving the floor footprint so you could see how the rooms use to be laid out. Eventually, we found a house that met both our needs and our budget. That house we bought with a 7-year ARM with an interest rate of 3.5%. We weren’t sure how long we planned to stay in San Francisco which is why we went with the ARM option again.
San Francisco wasn’t working for me, for various reasons, and I got offered a great job up in Seattle so we moved up there. We owned our San Francisco house less than 2 years so I wasn’t entirely sure we would break even. However, we lucked out and sold it for 16% more than we bought it for. In retrospect, I think the buyer might have overpaid because we’ve been keeping an eye on the house and it didn’t appreciate much when it was sold 3 years later.
In Seattle, we lived in a temporary rental for several months which, in retrospect, I think was a mistake because there was too much pressure to buy a house quickly. Though, there weren’t a lot of longer term rentals that would fit our family’s needs. Jaeger and I also had trouble agreeing on a house but we eventually found a house that was good enough. We got another 7-year ARM, at 4.125%, because we felt there was a decent chance we’d leave Seattle in 5 years. This was the first house we owned that required major repairs. The roof started leaking even before we moved in7. However, this was the house where I really learned that I like quirky better than shiny. Even with it’s flaws, I liked it better than our San Francisco house. Also, the house came with an insane number of roses in the front which, at first, overwhelmed me but I now miss.
Seattle wasn’t working for Jaeger, for various reasons, so we decided to move back down to California. We made this decision about a month prior to the pandemic starting but I wanted to stick around till I had worked a full two years at that library. By the time we were ready to sell, it was the summer of 2020. Not the best time to sell, even though I believe the market picked up later. This was another house we sold for loss, about 8% less than we bought it. However, we lost more money because the new roof was a significant expense and we had also spent money on the master bath8.
Exactly where to move to in California was a matter of debate. I didn’t want to deal with the stress of living in a large city on top of my disappointment in leaving my Seattle job. Jaeger found a rental in the Santa Cruz Mountains. It was glorious and provided exactly the life I wanted for my kids. However, it was a bit too remote for Jaeger. So, when we started looking to buy again, we ended up gravitating towards a house closer to Santa Cruz.
At this point we were still in the middle of the pandemic except housing had picked up significantly, even in most cities. This was the oddest house buying experience I’ve had. Competition was probably fiercer than what we had previously experienced in Seattle and San Francisco. Twice we found houses which were no longer available by the weekend. Once we went on a house tour where the buyer’s agent insisted on joining us due to COVID reasons, I guess to keep our germs from touching the owner’s property, and spent the whole tour with a drooping mask crowding us in a clearly unsafe manner. Fortunately, that house didn’t speak to us so we didn’t have to deal with that agent again.
One weekend I needed to get out of the house so I drove down to check out a City of Santa Cruz park with redwoods. It was a lovely trail and reminded me a lot of wandering around the woods when I was growing up, though with significantly fewer blackberry brambles to get scratched by. The park happened to be relatively near a house for sale so I left my car at the park and walked up the hill to the house, just to see the outside. The outside didn’t offend me and I really liked the idea of being close enough to walk to real trees9. The inside pictures looked decent so we scheduled time to see the house.
The house was large and quirky, so it met many of our requirements. We put in an offer but were outbid. I was disappointed but really didn’t want to pay more than I felt the house was worth and so moved on. That is, until our realtor contacted us about a week later asking if we were still interested. It turns out the other buyers were getting cold feet and/or were asking for more concessions than the seller wanted to give so we got the house after all. This was when interest rates were still at historic lows and so we bought this house with a 30-year fixed mortgage and an interest rate of 3.25%. I really like this house and hope we are finally done moving and can stay here for a long time, especially given our low fixed interest rate.
Looking back, we’ve been extraordinarily lucky when it comes to buying houses. Our first house buying experience could have ended very badly if we hadn’t understood the terms of the loans or if we were just unlucky and lost our jobs early on before we’d built up any significant savings. However, it didn’t end badly and is one of the reasons we can buy nice houses in California. For our most recent house, if we bought now, we’d probably be paying an additional 40% a month in housing costs, mainly due to the interest rate increase10.
Again, we’re really lucky.
- If we include rentals, I have lived in 9 homes in 18 years. ↩
- This was in the era where Jaeger was occasionally given paychecks that he was asked not to cash till several days in the future. ↩
- On the upside, this also kept us from paying mortgage insurance. Though, I’ve wondered since how our broker managed that. It doesn’t make sense to me that you can get out of mortgage insurance just by adding more debt. ↩
- These days I would have definitely backed out but these days I would have insisted on seeing the docs ahead of time anyway. ↩
- Note, I love these books but they are quite old at this point and some of the information is dated. ↩
- This is one reason I feel really bad for tech people who started in California. Yes, they have good salaries but it’s still really hard to save enough for the insane housing prices we have out here. ↩
- Don’t buy a flat roof in the northwest even if the view is great. I knew better but I was so desperate to agree on a house at that point that I compromised where I shouldn’t have. Also, the inspector had pointed out potential roof problems, we just didn’t realize it was actively leaking as we bought in summer. ↩
- Though, much of that labor was provided by Jaeger. ↩
- A tree is not real unless it’s thick enough you can’t put your arms around it. ↩
- This is assuming a 30-year jumbo mortgage with a rate of 5.625%, which is probably on the low side, and looking at Zillow’s Zestimate range and choosing the lowest number given we are in a cooling housing market. ↩