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.
September 9th, 2008 at 03:01 pm 1220972462
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.
September 9th, 2008 at 03:11 pm 1220973069
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September 9th, 2008 at 04:19 pm 1220977191
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.
September 9th, 2008 at 05:56 pm 1220983018
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.
September 9th, 2008 at 06:03 pm 1220983401
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September 9th, 2008 at 07:25 pm 1220988307
$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.)
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