Article By: Jim Porter – September 9, 2022
Like I always say, the only benefits of being 63 are lessons learned from the past and grandkids.
Mary and I purchased our first house in 1984 for $120,000 just south of the city in Pacifica with nothing down and a first mortgage at Home Savings at 10%, a second mortgage with Beneficial at 15% and a third mortgage carried by the seller at 12%. My payment was a total of about $1,500 per month for the three mortgages and the taxes and insurance.
By late 1988, the home value had ballooned to $210,000 and our fourth healthy child was born. Sounds pretty good, right?
Well, unfortunately, it wasn’t because from 1984 to 1988 my income was only around $5,000 per month. I used our house like an ATM machine and borrowed against my home as our equity grew. We sold our house in October 1988, paid off all our debt and came to Vacaville with only $5,000 in our pocket and had to rent for two years before we bought the house we would live in for 29 years in the Meadowlands neighborhood of Vacaville.
The lesson: Don’t be an idiot and get a financial coach if you need one.
We bought our four-bedroom and three-bath home in October 1990 for $210,000 with a very small down payment and a total house payment of $1,650 per month, which was $300 more than what our rent was for those two years of agony dealing with landlords that didn’t like my four kids, our dog and the two cats.
Solano County home values went up in value 26% in 1988 and 16% in 1989. By 1997, and after a couple of recessions, our home was only worth $195,000, $15,000 less than what I paid for it seven years earlier, and I thought to myself, “Holy cow, I guess we really missed out on the American Dream.”
The lesson: I didn’t buy this house as an investment and your owner-occupied home should never be considered an investment because unless the kids and your spouse pay rent, your home produces no income.
This house is now worth $650,000 but the only way I could take a big profit out of this house tax free is if I sold the house for $650,000 and bought a new one for $350,000 in Texas or Tennessee because we need a place to live with our large dog and now three cats.
A first-time homebuyer today may have a similar experience as I had in 1990 because home values have increased in Solano County nearly 35% since 2019. Now the market has cooled off across the country because interest rates have gone up, and a soccer mom or dad must pay $120 to fill up the minivan.
The lesson: It’s best to buy a home when it’s a buyers’ market and there are plenty of homes to choose from.
Although 5.75% sounds like a high rate, it is much lower than the 12% rate I had on my first house in Pacifica, which is now worth $900,000, and the same rate I had on my second house in 1990, which is now worth $650,000. Rents always go up and a fixed-rate mortgage payment remains the same and goes away after 30 years.
We should all encourage our kids to become successful and financially smart homeowners.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.
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