Does Owning a Home Really Put You Ahead of Your Peers?

by Kevin on February 3, 2012

My wife and I bought our first home at the ages of 23 and 22. This was in the year 2007. We put 5% down, got a traditional 80% mortgage, and had a slightly higher interest rate 2nd mortgage for the remaining 15%.

At the time our family and friends showered us with praise. We heard things like “This is such a big step for your future!” and “You are so far ahead of your peers!”. And I’ll grant that, at the time, this was somewhat true. It’s not that other young couples hadn’t purchased homes, but we hadn’t bought a house to flip. We bought a home to live in. The people we knew our age that had purchased something had the intention of flipping it or building their real estate empire.

Were we truly ahead because of our home purchase?

How Far Ahead of Our Peers Were We?

Being able to purchase something like a home is a big deal. Owning your house in the United States is something that a lot of people never accomplish. We saved up for a long time to put that 5% down and be in a spot where we could afford our mortgages. We still had acceptable levels of savings stored away for emergencies. We were smart about our finances. We had extra cash flow and had done the math – we could pay off the 2nd mortgage within 3 years of buying the home. It would cost us a few thousand in interest and we figured there were worse things that you can blow a few thousand dollars on. Plus, we weren’t going to move for years.

But we rushed into home ownership. We didn’t save up the 20% down payment that every smart professional recommends. We used the second mortgage to avoid PMI. And as much as we had tried to think things through, as much as we thought we were going to live in Birmingham for a long time, we were wrong. We were short-sighted. And we didn’t have mentors telling us to slow down… which is understandable considering the entire country was swept up in the whole “houses never go down in value!” mentality.

Keeping Up With The Joneses

There is something deeply twisted in the American psyche. We’re always comparing ourselves to others. Always wanting to be better. Always wanting to one up the next guy.

So when our friends and family were patting us on the back and saying how far ahead of our peers we were, they were feeding our internal pride. It made us blind to some of the dangers we were taking on — and we thought we were being responsible. (Granted, we were more responsible than many. We didn’t go out and finance 10 properties on stated income mortgages to try and build an empire based on nothing. And we could afford our mortgages. And we got fixed-rate mortgages, not interest only. And so on.)

Comparison Always Ends in Pain

In the end, we got burned by trying to be ahead of our peers. We ended up moving at the end of December 2010 — a little more than 3 years after we closed on our home. We never thought we would move that quickly, but living 6+ hours away from our families was too much for us. An unexpected opportunity opened up and we jumped at the chance to move. We ended up losing practically all of our equity in our home when we moved — a hefty 5 figure loss.

But it could have been worse. We could have had no equity in our home. We could have not worked hard to pay off our 2nd mortgage quickly. We could have been foreclosed on or had to do a short sale. So we count our blessings and are thankful for those things.

In the end owning something doesn’t put you ahead of your peers. Just because you can buy a home, or a car, or a vacation home… whatever the status symbol of your stage of life is, it doesn’t mean you’re doing better if you’ve got it. It doesn’t mean you aren’t doing enough if you can’t afford it. Every situation is unique. We’re more concerned with savings and cash flow at this point. We could have purchased a nicer or bigger home in Knoxville if we wanted to, we could have stretched ourselves extraordinarily thin to make ourselves look better. But that doesn’t really benefit us, and we would be greatly increasing our odds of something bad happening financially.

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February 6, 2012 at 8:41 am

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Eric February 3, 2012 at 11:42 am

Kevin,
Great points! You are right, it didn’t need to take a house collapse to expose our deep psyche to compare ourselves with the Joneses. We were like that before, and we probably are still like that now. I just hope more people realize how debt can propel us to another socio-economic level, but it is always at a high cost. Thanks for sharing this great lesson. Good luck and God Bless!

Keep up the good work,
Eric

Money Infant February 4, 2012 at 2:27 am

It is impossible to see into the future. There’s never a way to know if you will need to move sometime in the near or distant future, especially in our increasingly mobile society. I’ve moved 10 times since leaving home at 18, that’s a move roughly every 2.5 years and while some were planned I think 3 of the 10 came pretty much out of the blue because of an opportunity that popped up. All you can do is try to put yourself in the best position possible for staying put and also for the eventuality that you will have to move (sometimes quickly). Of course now I just rent 🙂

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