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Three years since the Hurricane. Lessons learned.

September 9th, 2008 at 07:38 am

This post by Monkey Mama got me thinking about anniversaries http://monkeymama.savingadvice.com/2008/09/06/six-years-and-...

It's been about three years since the levees broke in New Orleans, forever changing our lives.

When it happened, we had a house with a $2,000 a month mortgage payment. This is the house:



We had some money in the bank, but didn't know if our house was even still standing or what if anything our insurance company would pay for. So we went to work. Literally.

First, let me say that Citibank, who bought our mortgage from our favorite local bank, gave us no relief from mortgage payments. Remember when Bush insisted that lenders give borrowers in New Orleans two to three months break from payments? Citigroup pretty much said screw you. I still hate them.

That said, as soon as the levees broke, our resumes went out. Hubby got a job right away, and I got a freelance gig writing for the local newspaper. Phew. Money to pay the mortgage. Now the real work began.

We moved into my sister's finished basement in Ohio for 6 months, paying $300 rent plus the gas bill and groceries.

Then, I set up an office and spent at least 5 hours a day every day on the phone trying to reach our insurance company and our adjuster. Adjusters kept quitting and each person I talked to in the claims department told me something different.

I also had to hire a contractor to fix the damage to my house so we could sell it. No easy task.

We had decided to stay in Ohio,and we couldn't really move on until we sold our house. Which meant we couldn't afford to wait 6 months or more for our insurance claim to be paid before we started fixing up our house.

I went to New Orleans in November of 2005 and spent 1 month fixing the house. I paid $18,000 out of pocket for everything from roof repair, fixing a balcony that was knocked off by a FEMA truck and rebuilding a concrete block privacy fence that was uprooted by a tree. I also did some "Designed to Sell" HGTV magic by painting the inside and outside of the house. And scrubbing everything to make it look fabulous.

Two contracts and some termites later, the house finally did sell, on my birthday. March 13. It was a miracle. And it came just in time. We had just got the new bill for our homeowners insurance. It had tripled, costing about $600 a month just for insurance. We wouldn't have been able to afford our house if we had stayed in New Orleans.

If we had lived paycheck to paycheck, we would have been so royally destroyed financially by this hurricane. We would have had to pay $2000 a month mortgage for a lot longer, and would have had to delay starting our lives over again while we waited for an insurance company to pay up. We would have missed the window of opportunity to sell our house. People were buying 6 months after the storm, when we were ready.

Here is the financial picture. We paid $225,000 for our house in June 2003. Sold it for $325,000 in March 2006. (Because it didn't flood, our house value went up a lot). We had $30,000 in equity already.
After real estate commissions, etc., we had $90,000 in cash free and clear to buy something in Ohio. Here is what we bought. Much more modest:



So we bought a 1957 ranch for $145,000. The experience of worrying about how to pay the mortgage after the storm, and our not so good experience with Citibank (having your mortgage sold to a company you did not choose to do business with) really changed our perspective.

We stretched to buy our first house, which is what the conventional wisdom is. It was a mistake. Too much house payment= too little freedom and to little wiggle room when something goes wrong. So we bought a more modest and cheaper more manageable house the second time.

My MIL didn't like it one bit. Many times she told me that we were supposed to always trade up, trading down wasn't the way it was supposed to work. She's never been through a disaster, and she and my FIL also live very different lives than me and the hubby want to. We agree to disagree.

Then, hubby and I set about finding a way to pay off the remaining $50,000.

When we finally got our insurance check for $18,000 (6 months after the storm!!), that all went to the mortgage. When we were both settled in to full-time jobs, we made the decision to liquidate $32,000 in stock in a taxable brokerage account to pay it off completely.

We ended up making one real mortgage payment. Then, we began depositing the amount we would have spent on a mortgage payment into the brokerage account to replace what we cashed out.

Some financial people would say that paying off the house isn't the right move. I disagree. There is a freedom and peace of mind that comes with owning your home outright. I remember my grandparents' mortgage burning party. We should all get back to that mindset. That a house is something to be paid off.

After we sold the Nola house, we set about really getting a hold of our financial lives. A natural disaster really drives home the need for savings. We had no idea that our paychecks would be gone virtually overnight. You can't live one paycheck away from financial insolvency. It's a recipe for bad things.

Many of our friends who didn't have money in the bank JUST finished their hurricane repairs. Three years later. One couple finished just in time for Gustav to come along. Thankfully it missed.

Having the house paid off has allowed us to not only sleep better at night, but also max out 401ks, IRAs, and Roth IRAs, every year, fully fund a 529 plan for the bean. And pay cash for all of the major home repairs to our new house.

It has allowed me to work as a freelancer instead of a full-timer so that we don't have to pay for daycare. It really has changed our life.

The current housing advice has it all wrong. Don't stretch. Find a modest house you can pay off ASAP, and find one you can fix up to make nicer. We really did buy the worst house in a good neighborhood, which means we are really improving the value with every project.

Thanks for listening to my ramblings. I get a little sappy every Katrinaversary.

15 Responses to “Three years since the Hurricane. Lessons learned.”

  1. Broken Arrow Says:

    Thanks for sharing something that seems so personal.

    I fully agree buying modest houses. That's what I would like to do some day as well. Buy only as much as I need, and of the best value possible.

  2. compulsive debtor Says:

    What an amazing story! Thanks for sharing it.

  3. Joan.of.the.Arch Says:

    Thrift-o, I don't know what your free-lance writing is, but I hope you can get this published for pay.

  4. mbkonef Says:

    I fully agree with you on buying a modest house that fits your needs. My DH and I sold our first home (a very nice townhouse) when my oldest was a baby to buy a less expensive twin. I did not want to be house poor and forced to work full time, pay for daycare full time etc. when we decided to have more children. I think my mother-in-law cried over that decision. She really loved our first house, but honestly, it was just a house. She was upset because the new place was older and not in a "fancy" neighborhood. Well, she did not have to make our mortgage payments, we did. It was a smart choice because I got laid off about 1 1/2 years later. I was already pregnant with our second and was able to have the freedom to decide to stay at home with the kids. When we sold that house I was pregnant with our 4th and we literally needed a bigger house. DH wanted a mini mansion but I talked him into something more than large enough for our needs, but with a much smaller mortage payment. 9 years later, I am glad every day that I stuck to my guns on that decision. Despite the downturn in the economy and his job issues, we are able to make our mortage payment every month and have well over $200K equity in our house. When people ask me about my dream house I tell them, it is my current house, but with no mortgage!

  5. thriftorama Says:

    My current house is my dream house too, because it's paid for, the new roof is on, the new furnace and windows are in and everything else is just cosmetic. I can grow veggies in my flower beds, I have room for a swingset in the back, and like my neighbors. That's what it's about, isn't it?

    The MIL has finally come around. Last Christmas she said she finally thought we made the right decision. That she understands now. We wanted to have money for travel, etc., and a big mortgage wasn't letting us do that.

    Also, let me say that post hurricane was one of the most difficult times in my life. Living in my sister's basement was NOT good for the marriage. We fought a lot because of all the stress. And I was literally on the phone for hours a day for months trying to get everything sorted out.

    Then throw in that practically overnight our lives changed. We missed our New Orleans life and our friends. We had to start over from scratch. We also went through three house contracts before it sold. Homeowners insurance wrecked the first two deals and delayed the closing on the last. It was impossible to insure a house in New Orleans, and the cheapest rate was $6,000 a year. Most people who could afford the house suddenly couldn't when you factored in insurance. And the city, desperate for revenue, raised property taxes too. It seemed like we were doomed.

    But you have to be persistent. I am thankful every day that it worked out for us and that we didn't have to declare bankruptcy or do something drastic to rid ourselves of that house.

    All were lessons hard-learned. I love having a paid off house. It really does change your life.

  6. Sunshine Suz Says:

    I'm glad everything worked out for you. Hurricane's are awful. I'm in Texas and right now we're all watching where Ike is deciding to go. My brother evacuated to the other brothers for Rita. It was really humbling to think that everything they might have left was crammed into their two cars. Happy ending to that story and they came home to only a roof leak.
    I hope you saved your important belongings.
    And hope you have a happy new life in Ohio....your new house looks much more family friendly. Little Bean will like playing in his back yard.
    God Bless on an emotional Katrinaversary.

  7. thriftorama Says:

    When you think you've lost everything, it's funny the things you miss. It puts things in perspective. we managed to save everything important. Letters, photo albums, pets, etc. All the things we buy in the store and think we can't live without? You can.

  8. Ima saver Says:

    I have had a paid for house for 30 years. It has given me so much peace of mind.

  9. fern Says:

    wow, that's some story. I must say your New Orleans house was just charming. I don't think MIL should question your decisions. You're right to do what you did. Peace of mind and stress-free living is everything.

    $600 a month for homeowners insurance. IMG. And i thought $820 a year was high (course i live inland but we still get hurricanes here.)

  10. thriftorama Says:

    When I called to insure my current house, the agent said it'd be $430. I said, "Oh, a month?" she said, "no, a year." I couldn't believe how cheap it was.

  11. monkeymama Says:

    WOW. Thanks for sharing. IT really is quite a story.

  12. gamecock43 Says:

    that is a good story. I must say I LOVE love love your new orleans house.

  13. thriftorama Says:

    I loved it too, but it's best to know when you are in over your head. I like my house much better now, because it's more manageable. Have you tried to fix a 135 year old house? It's always 10 times more complicated than it should be.

  14. frugaltexan75 Says:

    Wow. Thank you for sharing your story. You'll have some amazing stories to share with your little one someday.

  15. baselle Says:

    Its tough being a sensible contrarian. You go girl!

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