Back When I Was Your Age

Back When I Was Your Age—A Rant

Dang. That title is one I didn’t think I’d ever write in this lifetime. And yet, there it is. And with good reason, I might add. For today I’d like to talk about how homes used to be purchased back in the old days.

For the sake of this illustration, the old days will include any days up to and including November of 1994, when we moved into the third house we’ve owned during our marriage.

You may not remember this, or even realize that this is the way the world used to operate, but not very long ago, a prospective homeowner had no choice but to cough up a 20% down payment for a house. Right about now, you may be thinking that coming up with that kind of cash is easy, what with loans from parents and cash advances on credit cards. But here’s the rub: the hopeful buyers had to PROVE that the money they were putting down actually belonged to THEM by providing bank records and paycheck stubs and tax forms and all kinds of other evidence.

No bank on earth allowed you to fall in love with a $40,000 house (as we did in 1979) and then borrow $8000 from dear old Mom and Dad as your very first act of long-term indebtedness. If your bank statements showed a recent and unexplained (read: unearned) infusion of $$$$$, you were of all unsavory characters most to be suspected.

To top it off, in 1979 the prevailing interest rate on home mortgages had risen to something like 12%, and would keep rising over the next couple of years to more than 15%. Now, if you were a saver back then—and there were actually people still committed to saving 10% of their income as a matter of course—you could really pile up some cash with interest rates like that. But if you just wanted to move from a too-small apartment into a starter home, it was going to cost you.

We got in on a great deal, though. We were able to “assume” the loan of a veteran, paying a down payment ($8000) and then taking over his payments for the remaining 28 years of his loan. We locked in his interest rate, which was 8%, plus we did not have to qualify income-wise like we would have with a regular loan. At the time, I was due to give birth to Scotty. Doug was making $600 per month and our house payment was a shocking $300.

Looking back, this was something of a risky move for us. We COULD NOT have a car payment and survive. (Heck, we could barely have a car and survive!) We did not have a credit card between us, so no temptation there. And yet, the risk we took on was NOTHING compared to the sub-prime mess being bought into hook, line, and sinker by lenders and borrowers alike in the current shake-down. Because the fact that we put 20% down provided us with protection against the potential of falling housing prices. If we got desperate, we could always sell the house and get our cash out.

I can’t tell you the last time I heard of a borrower putting down 20% on a house. It used to be that if you did not have 20%, you were “renters.” There was no shame associated with renting, but there was a huge responsibility associated with purchasing.

Another thing that only people on the margins would consider back then was taking out a “second mortgage.” I distinctly remember an episode of All In The Family in the early 70s, in which Archie Bunker (unbeknownst to his long-suffering wife, Edith) took a second mortgage against their home to finance his purchase of the neighborhood pub. My father nearly died when we watched that show together, since he and my mother had just finished paying off a 20-year mortgage in 11 years.

“Never, ever take out a second mortgage,” Dad said. “Not even to do home improvements. You could lose your house!”

These days? Home equity lines of credit are how people fund their vacations, pay for their children’s educations, finance weddings, and buy stocks which are all but guaranteed to go higher. And why not?? EVERYONE KNOWS that home values only go one direction—up! Why not use some (or all) of that equity to provide yourself and your loved ones with all the advantages a line of credit against your one-and-only home can provide?

OK, so technically it might not BE your one-and-only home. You MIGHT have taken the equity out of your primary residence to put minuscule down payments on any number of rental homes, because that’s the American way, right?

It might be the American way, but it’s really, really not smart. Really. Trust me on this.

Now that I’m my age, I look around and see nothing but fall-out from the terrible lending practices that have resulted in consumers with nutty entitlement mentalities overextending themselves with little to no margin on which to fall back.

Doug and I own a lovely home which we built 13 years ago. At the time, we not only put down the required 20%, but we also borrowed scores of thousands of dollars less than the bank begged to lend us. We did not WANT to borrow the maximum allowed by law, because if something—anything—went wrong, our home would be at risk.

Now, our home’s value is being undermined by the foreclosures of a number of houses in our area. Evidently, even in the high-end neighborhood adjoining ours, borrowers were allowed to put almost no money down and to take out jumbo loans with terms that could only be described as “easy credit.” Then when they lost their jobs at Sprint or wherever, or their adjustable mortgages, umm, adjusted, they could no longer make the payments on their McMansions.

Two houses near us, recently valued at 1.5 million each, sold for paltry sums like $850,000. What if you, a responsible borrower with a significant amount of home equity you hoped not to lose, wanted to sell your own home—but lived next door to one selling for half the price you should have been able to get?

Of course, disasters like health crises happen which sometimes force homeowners into foreclosure. But the articles I’ve read about this situation indicate these homeowners borrowed WAY more than they could afford, at terms which were ridiculously liberal to the extreme. Unless the housing market had gone STRAIGHT UP, they were doomed from the beginning to lose their shirts.

I don’t know if I feel sorry for them or not, but I REALLY feel sorry for those who are trying to behave in a fiscally responsible manner and still get caught in the crossfire, with their properties losing value hand-over-fist.

What about you?? Any housing market stories you’d care to share?

Posted by Katy on 03/24/08 at 03:23 PM

Fallible Comments...

Alas, we put 20% down because we had to. But, as one without consumer or car debt (thank You Jesus), I'm glad to have some equity.
Posted by Mary DeMuth on 03/24/08 at 04:56 PM
Nothing specific. I do remember that when we were house hunting 20 years ago we got disgusted looks from our lender and from our real estate agent because we would only look at houses 1/2 the amount that we qualified at.
We knew what we could afford. I am glad we did. Nobody warned you that taxes would go up 15% a year and now be a larger % of our mortgage than our principle.

Take Care
Michael
Posted by Michael #2 on 03/24/08 at 05:02 PM
Mary--I can't imagine a scenario in which you'll be sorry you made a hefty down payment!! (And believe me, I can imagine LOTS of scenarios--ha.) You are in a terrific situation, all things considered!!

Take Care Michael #2--How are you, sir? You and your wife sound like us. We did stretch ourselves on our starter home, but on the next two, we purchased WAY less that we were qualified for. We wanted to put our kids through Christian schools, and that goal was not compatible with ginormous house payments. Congrats on making a sound fiscal decision!!!
Posted by Katy on 03/24/08 at 05:07 PM
katy - with my first and only house i was not hip to the concept of saving first then putting a decent downpayment, so i paid the least i could to get into a house - because, after all, everyone told me that owning is always waaaayyyy better than renting, right?

i sold the house after a few years and i didn't make anything but i didn't lose either. looking back, i wish i would have done it differently but i have learned a lot about finances and debt (aka slavery) since then.

i do hope though that this whole housing thing levels out - for the sake of people like you and many others who are trying to live responsibly and reasonably. in a day where life is lived on plastic, it is a rare thing to read a post like this.
Posted by joshua on 03/25/08 at 06:50 PM
I'm just curious about how closing costs looked when you all purchased your first home? When my husband and I purchased our first home a few years back, we were astonished by how the closing costs on a mortgage took a huge chunk of the 20 percent we had saved to put down on our home. Obviously, I live in an area where housing is still incredibly affordable, and the real estate market here is quite good. I'm still taken aback by those loan and title fees, though. Wow.
Posted by Kathryn Harris on 03/25/08 at 08:10 PM
I totally agree with all that you have to say. Debt is an enemy to peace. If you can't afford it, don't buy it. Wow, what a concept.

Praise God our eternal home is "paid in full."
Posted by Jennifer L. Griffith on 03/26/08 at 06:46 PM
Joshua--"I was not hip to the concept" made me laugh. It's hard to fault young people for accepting the terms of moneylending as they are currently practiced. It's just that it's SO much easier to become "enslaved to the lender" now than in the old days. In the old days, you couldn't borrow money unless you had some type of collateral. A steady job, stable income, possessions that could be repossessed if necessary, and character references!!! Now? What's your FICO score, baby? It's not fair to you guys....

Kathryn--I think I still have the paperwork from our home purchase of 1979, but it would be buried in the basement somewhere. I do believe, though, that when we assumed the loan of a veteran, there were very little if any closing costs involved. But I'm not sure this type of loan even exists anymore. However, our two refinances on our current home (which we did to get a lower interest rate while ratcheting down from a 30-year to a 15-year fixed rate) were obtained with no points or closing costs, which actually just means that costs are rolled into the loan. No free lunches as far as I know.....

Jennifer--I appreciate your comment!! My two married kids and their spouses and doing SO WELL getting out of debt and living on what they make. I don't know when I've ever been so impressed with anyone's discipline as I am with theirs!! It's hard to do when you're young--shouldn't the whole world be your oyster??? :) But they actually seem to get the concept of deferred gratification, which fills ME with instant gratification!!

Our eternal home is "paid in full"--I love it!!
Posted by Katy on 03/27/08 at 01:15 PM
Would Real Estate and Mortgage Fraud make employnment worse? I just read incredible article in local Florida newspaper of a police roundup of dozens of real estate, mortgage, appraisars, accountants, attorneys, etc. in two different cases. And many more of these arrests for different companies and individuals is expected.So I wonder, been the market the way it is now, with wall street being thankfully helped by the U.S. Government, due to the real estate mess, how about the thousands of people who are left jobless once their bosses go to jail, or while the trials go on. People only tend to think of the homes not being sold, which is pretty bad in itself. But there are apparently thousands of people around the country who made those loans illegally to start with. And now the poor employees for those companies will have no job.
Posted by Toronto condo on 03/09/09 at 10:02 AM
I've never cut grass. I grew up in apartments for the most part so no yard work for me. Now, <a href="http://www.mississaugacondominium.com/neighbourhood/SquareOne ">square one condos</a>I won't do it unless someone is willing to fork over half the money in the world. I am so allergic to grass, and freshly cut is the worst for me. No thanks.
Posted by square one condos on 07/25/09 at 02:53 PM

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Personal blog of christian writer & fallible mom Katy McKenna Raymond in Kansas City, Missouri Katy is represented by Greg Johnson at WordServe Literary Read more Katy at LateBoomer.net Follow Katy on Twitter Follow Katy on Facebook 123 Recent Posts Try Becoming Brenda Starr Off Beat Scattered That’s It So I’ve Finally Signed With An Agent. Now What? The Spoon Sciatica Sweetheart A Woman’s Train of Thought Has No Caboose However much we own, we are all still living on borrowed time After all, when restaurants shrink portions, they don’t shrink prices. As with everything in life, balance is key. Slow down, you move too fast… Yeah, I know. I have issues. Search Advanced Search Syndicate Login E me at katy @ ngenius.com	Back When I Was Your Age—A Rant Dang. That title is one I didn’t think I’d ever write in this lifetime. And yet, there it is. And with good reason, I might add. For today I’d like to talk about how homes used to be purchased back in the old days. For the sake of this illustration, the old days will include any days up to and including November of 1994, when we moved into the third house we’ve owned during our marriage. You may not remember this, or even realize that this is the way the world used to operate, but not very long ago, a prospective homeowner had no choice but to cough up a 20% down payment for a house. Right about now, you may be thinking that coming up with that kind of cash is easy, what with loans from parents and cash advances on credit cards. But here’s the rub: the hopeful buyers had to PROVE that the money they were putting down actually belonged to THEM by providing bank records and paycheck stubs and tax forms and all kinds of other evidence. No bank on earth allowed you to fall in love with a $40,000 house (as we did in 1979) and then borrow $8000 from dear old Mom and Dad as your very first act of long-term indebtedness. If your bank statements showed a recent and unexplained (read: unearned) infusion of $$$$$, you were of all unsavory characters most to be suspected. To top it off, in 1979 the prevailing interest rate on home mortgages had risen to something like 12%, and would keep rising over the next couple of years to more than 15%. Now, if you were a saver back then—and there were actually people still committed to saving 10% of their income as a matter of course—you could really pile up some cash with interest rates like that. But if you just wanted to move from a too-small apartment into a starter home, it was going to cost you. We got in on a great deal, though. We were able to “assume” the loan of a veteran, paying a down payment ($8000) and then taking over his payments for the remaining 28 years of his loan. We locked in his interest rate, which was 8%, plus we did not have to qualify income-wise like we would have with a regular loan. At the time, I was due to give birth to Scotty. Doug was making $600 per month and our house payment was a shocking $300. Looking back, this was something of a risky move for us. We COULD NOT have a car payment and survive. (Heck, we could barely have a car and survive!) We did not have a credit card between us, so no temptation there. And yet, the risk we took on was NOTHING compared to the sub-prime mess being bought into hook, line, and sinker by lenders and borrowers alike in the current shake-down. Because the fact that we put 20% down provided us with protection against the potential of falling housing prices. If we got desperate, we could always sell the house and get our cash out. I can’t tell you the last time I heard of a borrower putting down 20% on a house. It used to be that if you did not have 20%, you were “renters.” There was no shame associated with renting, but there was a huge responsibility associated with purchasing. Another thing that only people on the margins would consider back then was taking out a “second mortgage.” I distinctly remember an episode of All In The Family in the early 70s, in which Archie Bunker (unbeknownst to his long-suffering wife, Edith) took a second mortgage against their home to finance his purchase of the neighborhood pub. My father nearly died when we watched that show together, since he and my mother had just finished paying off a 20-year mortgage in 11 years. “Never, ever take out a second mortgage,” Dad said. “Not even to do home improvements. You could lose your house!” These days? Home equity lines of credit are how people fund their vacations, pay for their children’s educations, finance weddings, and buy stocks which are all but guaranteed to go higher. And why not?? EVERYONE KNOWS that home values only go one direction—up! Why not use some (or all) of that equity to provide yourself and your loved ones with all the advantages a line of credit against your one-and-only home can provide? OK, so technically it might not BE your one-and-only home. You MIGHT have taken the equity out of your primary residence to put minuscule down payments on any number of rental homes, because that’s the American way, right? It might be the American way, but it’s really, really not smart. Really. Trust me on this. Now that I’m my age, I look around and see nothing but fall-out from the terrible lending practices that have resulted in consumers with nutty entitlement mentalities overextending themselves with little to no margin on which to fall back. Doug and I own a lovely home which we built 13 years ago. At the time, we not only put down the required 20%, but we also borrowed scores of thousands of dollars less than the bank begged to lend us. We did not WANT to borrow the maximum allowed by law, because if something—anything—went wrong, our home would be at risk. Now, our home’s value is being undermined by the foreclosures of a number of houses in our area. Evidently, even in the high-end neighborhood adjoining ours, borrowers were allowed to put almost no money down and to take out jumbo loans with terms that could only be described as “easy credit.” Then when they lost their jobs at Sprint or wherever, or their adjustable mortgages, umm, adjusted, they could no longer make the payments on their McMansions. Two houses near us, recently valued at 1.5 million each, sold for paltry sums like $850,000. What if you, a responsible borrower with a significant amount of home equity you hoped not to lose, wanted to sell your own home—but lived next door to one selling for half the price you should have been able to get? Of course, disasters like health crises happen which sometimes force homeowners into foreclosure. But the articles I’ve read about this situation indicate these homeowners borrowed WAY more than they could afford, at terms which were ridiculously liberal to the extreme. Unless the housing market had gone STRAIGHT UP, they were doomed from the beginning to lose their shirts. I don’t know if I feel sorry for them or not, but I REALLY feel sorry for those who are trying to behave in a fiscally responsible manner and still get caught in the crossfire, with their properties losing value hand-over-fist. What about you?? Any housing market stories you’d care to share? Posted by Katy on 03/24/08 at 03:23 PM Fallible Comments... Alas, we put 20% down because we had to. But, as one without consumer or car debt (thank You Jesus), I'm glad to have some equity. Posted by Mary DeMuth on 03/24/08 at 04:56 PM Nothing specific. I do remember that when we were house hunting 20 years ago we got disgusted looks from our lender and from our real estate agent because we would only look at houses 1/2 the amount that we qualified at. We knew what we could afford. I am glad we did. Nobody warned you that taxes would go up 15% a year and now be a larger % of our mortgage than our principle. Take Care Michael Posted by Michael #2 on 03/24/08 at 05:02 PM Mary--I can't imagine a scenario in which you'll be sorry you made a hefty down payment!! (And believe me, I can imagine LOTS of scenarios--ha.) You are in a terrific situation, all things considered!! Take Care Michael #2--How are you, sir? You and your wife sound like us. We did stretch ourselves on our starter home, but on the next two, we purchased WAY less that we were qualified for. We wanted to put our kids through Christian schools, and that goal was not compatible with ginormous house payments. Congrats on making a sound fiscal decision!!! Posted by Katy on 03/24/08 at 05:07 PM katy - with my first and only house i was not hip to the concept of saving first then putting a decent downpayment, so i paid the least i could to get into a house - because, after all, everyone told me that owning is always waaaayyyy better than renting, right? i sold the house after a few years and i didn't make anything but i didn't lose either. looking back, i wish i would have done it differently but i have learned a lot about finances and debt (aka slavery) since then. i do hope though that this whole housing thing levels out - for the sake of people like you and many others who are trying to live responsibly and reasonably. in a day where life is lived on plastic, it is a rare thing to read a post like this. Posted by joshua on 03/25/08 at 06:50 PM I'm just curious about how closing costs looked when you all purchased your first home? When my husband and I purchased our first home a few years back, we were astonished by how the closing costs on a mortgage took a huge chunk of the 20 percent we had saved to put down on our home. Obviously, I live in an area where housing is still incredibly affordable, and the real estate market here is quite good. I'm still taken aback by those loan and title fees, though. Wow. Posted by Kathryn Harris on 03/25/08 at 08:10 PM I totally agree with all that you have to say. Debt is an enemy to peace. If you can't afford it, don't buy it. Wow, what a concept. Praise God our eternal home is "paid in full." Posted by Jennifer L. Griffith on 03/26/08 at 06:46 PM Joshua--"I was not hip to the concept" made me laugh. It's hard to fault young people for accepting the terms of moneylending as they are currently practiced. It's just that it's SO much easier to become "enslaved to the lender" now than in the old days. In the old days, you couldn't borrow money unless you had some type of collateral. A steady job, stable income, possessions that could be repossessed if necessary, and character references!!! Now? What's your FICO score, baby? It's not fair to you guys.... Kathryn--I think I still have the paperwork from our home purchase of 1979, but it would be buried in the basement somewhere. I do believe, though, that when we assumed the loan of a veteran, there were very little if any closing costs involved. But I'm not sure this type of loan even exists anymore. However, our two refinances on our current home (which we did to get a lower interest rate while ratcheting down from a 30-year to a 15-year fixed rate) were obtained with no points or closing costs, which actually just means that costs are rolled into the loan. No free lunches as far as I know..... Jennifer--I appreciate your comment!! My two married kids and their spouses and doing SO WELL getting out of debt and living on what they make. I don't know when I've ever been so impressed with anyone's discipline as I am with theirs!! It's hard to do when you're young--shouldn't the whole world be your oyster??? :) But they actually seem to get the concept of deferred gratification, which fills ME with instant gratification!! Our eternal home is "paid in full"--I love it!! Posted by Katy on 03/27/08 at 01:15 PM Would Real Estate and Mortgage Fraud make employnment worse? I just read incredible article in local Florida newspaper of a police roundup of dozens of real estate, mortgage, appraisars, accountants, attorneys, etc. in two different cases. And many more of these arrests for different companies and individuals is expected.So I wonder, been the market the way it is now, with wall street being thankfully helped by the U.S. Government, due to the real estate mess, how about the thousands of people who are left jobless once their bosses go to jail, or while the trials go on. People only tend to think of the homes not being sold, which is pretty bad in itself. But there are apparently thousands of people around the country who made those loans illegally to start with. And now the poor employees for those companies will have no job. Posted by Toronto condo on 03/09/09 at 10:02 AM I've never cut grass. I grew up in apartments for the most part so no yard work for me. Now, <a href="http://www.mississaugacondominium.com/neighbourhood/SquareOne ">square one condos</a>I won't do it unless someone is willing to fork over half the money in the world. I am so allergic to grass, and freshly cut is the worst for me. No thanks. Posted by square one condos on 07/25/09 at 02:53 PM Page 1 of 1 pages Commenting is not available in this weblog entry. Next entry: Ready To Enter Part Two Of My Agent's Contest? Previous entry: Holy Weak << Back to main


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Back When I Was Your Age—A Rant

Personal blog of christian
writer & fallible mom
Katy McKenna Raymond
in Kansas City, Missouri