After our first home ownership debacle, we really just wanted to rent, not wanting to deal with the whole home ownership ordeal again. However, after some time to clear our heads, sooth our financial wounds, watch the real estate market, and just recover in general, we have reconsidered, reevaluated, and have now re-entered the homeownership role.
While we might have lost big with our first home and are still a little gun-shy when it comes to once again owning a stand-alone home, we have purchased a nice little condo in a good part of the Chicagoland area where we might actually come out all right financially.
What we Lost on Our First Sale
We bought our first home for $295,000. However, in 2011, after 18-months on the market and with prices continuing to decline, we finally sold for $230,000 - a $65,000 difference from where we bought. Add in to this amount 5 percent commission to the real estate agent ($11,500), $3,500 toward the buyers' closing costs, property taxes owed to the tune of $7,500, and then add in all the little miscellaneous charges (some of which weren't so little), and we came out losing about $90,000 on the deal, and that's not even including the money we put into the place to sell it.
Even though we lost our tail on the deal and it took us some time to collect our wits afterward, the change of situation might still allow us to come out of this tough real estate market financially intact. After taking some time off from home ownership, we had enough money to scrape together to allow us to buy a condo outright that is much smaller than our last house, at a very good price and in a very good area. This situation could help us recover some of what we lost in our first home.
Mortgage Interest
We had a 15-year mortgage with a 5.375 percent interest rate on our first home, which over time would have cost us about $60,000 in future interest since we had been making extra payments toward paying it off.
Now however, having cut our losses from our first home and bought a condo outright, we have in turn managed to eliminate that extra $60,000 in interest that we would have paid to the bank. So really, it's like we saved that money over the long haul by selling, downsizing, and re-purchasing without a mortgage.
Comparable Home Costs
Since I track all sorts of financial aspect of our lives, I have a good read on what we spend in most expense categories. Our mortgage at our first home was about $1,325. Add to that about $440 a month on property taxes and insurance, another $175 on maintenance, and an average of $265 on utilities, and our total home costs were about $2,200 per month.
In our condo though, there is no mortgage since we paid cash. Property taxes and insurance run about $250 a month, there is a $300 per month assessment for things like water, trash, common insurance, maintenance, etc., and utilities will run about $175. This means that our new monthly living expenses will be just over $700 a month or a third of what they were when we owned our previous home.
The End Result
I figure that even if we could stay in our new place for five years, with a cost savings of $1,500 a month compared to when we lived in our last home, it's an $18,000 a year savings, spread out over five years, which is a total of $90,000 in savings right there. Add to this the extra $60,000 in mortgage interest savings (and no, we're not itemizing on our taxes, so the lost deduction doesn't come into play), and we're up to $150,000 in savings over the next five years. Plus, the area in which we bought is more attractive to buyers, has better resale value (meanwhile, I found our previous home's estimated value online has now dropped from the $230,000 at which we sold to $190,000), is safer, has better schools, and we just like the area better as a whole. This will hopefully maintain our home's value over the long run as well. Therefore, I'm thinking that while we lost in the short-term, we might actually come out of this wild ride through the worst real estate market most of us have ever known, bruised and battered, but intact.
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