Following our Route to Recovery special report, we asked contributors from Associated Content to tell us their stories about the recession.
By Melissa Plondke
My husband and I are some of the fortunate in Austin, Texas. As a bookkeeper for small businesses and individuals, I know how hard the recession has hit the country. I’ve witnessed local businesses falter and fail. A wealthy client of mine had to liquidate his portfolio, and he only recently has ventured back into investing. A retail client struggled mightily as customers disappeared. Friends have been impacted by pay cuts and job losses.
But we were frugal before the recession. We lapped up conventional financial wisdom. We fully funded Roth IRAs and contributed generously to a 401(k). We carried no credit card debt or auto loans. We paid some extra monthly on our 15-year fixed-rate mortgage. I was just starting my business after leaving a hospitality career.
We were poised to be the opportunists of the recession — late 20s, plenty of cash and excellent credit. But, because we were so aggressive, this year was our most financially harrowing. We ended up in a precarious position with one home too many.
Since the recession began, we have acquired two properties — a single-family rental house and a new home. We purchased both houses at value prices with hefty down payments, yet financing each was a nightmare. The investment property came first, and we suffered from the sins of previous investors.
Although many new homebuyers have less than a 20 percent down payment, some banks would not consider our application without 35 percent down. Every element of our application was scrutinized, and the financing we took to closing was a 15-year note at 8.14 percent despite pristine credit.
While it is not the double-digit interest rates of the eighties, it exceeded our expectations for a mortgage. We refinanced two months later privately at 6.21 percent. By that time, investors were looking for anything more palatable than the wild roller coaster of the stock market.
This spring, we again found ourselves in the real estate market. We happened across an under-priced home in an excellent neighborhood, one we previously could not afford. We discovered we were not the only bargain-hunters in Austin; in the three days the home was on the market, at least a dozen others viewed the home. Our offer secured a contract on the house, and we raced to meet the owner’s four-week closing deadline. We used a mortgage broker to locate affordable financing that fit within our time constraints. This time around, we obtained a 4.75 percent 30-year mortgage. We later joined record numbers of Travis County homeowners protesting their property taxes with new market values.
Our net worth was tied up in the equity of the three houses, and home equity laws in Texas would only permit us access to those funds through the sale of our previous house. We discussed the sale with a real estate agent, but negotiated the sale to colleagues prior to listing the house. Instead of a commission, the agent addressed the necessary paperwork for a fee of $2,000.
We breathed a sigh of relief when the sale closed in August. With cash in hand, we are hunting for another opportunity. Our good habits prior to the recession are paying off as others struggle.