This post was written by one of my regular readers, Johannah B. After viewing a few comments by Johannah, I practically begged her to write some accounts of her life. She has already written one post regarding her debt-free life journey that was well-received by the Life And My Finances audience. Enjoy this record of her first mortgage-free house!
I realize everyone won’t be able to replicate this particular scenario for themselves. This is our story of how we got to be mortgage free. While your route will be different, there isn’t anything in this world that I have found more financially freeing than to be able to live in a house that you fully own.
House Number One – $38,000. I was only 18 when we bought our first house. I had already been married over a year and out of high school for two. I wanted a house because my husband wanted a Lotus Esprit (18K) and I thought that was a total waste of money. Obviously the house won.
The loan for our first house came from our town’s local savings and loan. They required 35% down payment and then would give us a mortgage of $24,800 @8 1/2%. And even though, as mentioned in an earlier post, we banked my entire salary, we didn’t have that amount saved. I only made $105.00 a week doing standard costing for a local manufacturing company.
The house was a good buy and in a good location – so we did decide to use all of what we had in savings and borrow the rest from family. I am so glad they were willing to help us. We were able to pay the largest lender (think in-laws) within the first year using my salary and our income tax refund. The other family member insisted that he would rather be paid the agreed amount monthly because he was using it “as it came in” for a charitable purpose. Both loans were interest free but we paid them as a priority to clear our debt slate (Editor’s note: This is tough to do! You’d love to pay the principle down on the bank loan, but family always comes first right?).
By the second year, I actually quit my job and went back to college full time which we paid for without any loans, and that same year we also bought a brand new 1973 Porsche 914 2.0 liter. We did have a car payment on this car, but my husband wanted it so badly that he took me to the car dealership every weekend for months and made me sit in it. Seriously we had to buy it – I simply could not be spending every weekend at that dealership! By the way this is the car that at 19 years of age I drove to college each day – how cool was that?
Between the third and fourth year in this house, even though I was going to school full time, we accumulated over $10,000 in savings. It was then that we decided to build our dream house.
We sold house #1 for $58,000. Because we had been more or less forced to put so many dollars down (now paid back) we had over $40,000 from the house profit and savings combined in the bank.
We purchased 5 acres of land for $30,000 in cash. We lived with my parents while our house was being built, saved an additional $20,000 and had a baby that year. The year was now 1978 and I was still driving that Porsche (also totally paid for). Our custom house contract was for $69,900 which did not include clearing the land, the driveway (it was a flag lot) or the well and septic. This time we didn’t have as much trouble getting a mortgage, but because we were building our own house, we had many more lessons to learn! No matter how hard you try, you just cannot get it built for the amount you plan on, and yes, the final price was indeed higher than we anticipated. It made our mortgage payment much more than we had planned.
We had planned on a few extra expenses with the new house, but there were a few really big surprises. For example, the electric company that serviced the area wanted $10,000 to hook up electricity to the new house. No, it wasn’t the boondocks, but they insisted that they had to extend the electric lines to our house and down our driveway. We negotiated to $5000 for electricity hookup after the phone company volunteered to put in the telephone poles for free. We also got a “unique” contract from the electric company to be able to reclaim our $5000 in costs over time. However, it would have been impossible in reality, and we almost went on a local TV segment called “7 on your side” before they agreed to refund the remaining portion of that contract back to us. Let’s just say it was in their best interest to do that, but the letter from the TV station wanting to air our story didn’t hurt our case any!
After moving in, we agreed I wouldn’t work outside the house, and we sat down and made a budget. I remember I used a 13 column accounting tablet to do it. The bottom line said we were short $15.00 a week and there was no food or clothing in that budget. Generous family members supplied their used and consignment shop clothing for our growing family (my 2 boys are 14 months apart). I used coupons and shopped on days they offered to double or triple them. I grew as a person and accepted any overflow food from neighbors gardens. I canned my own vegetables, made my own jellies and jams, and starting baking my own bread. We had chickens for eggs and we really did eat for nearly nothing.
Our bills were for things like gasfor the car, auto insurance, house insurance, real estate taxes, mortgage payments, driver license renewals, inspection fees, electricity, oil, tolls, chicken feed, etc. There wasn’t anything unusual or high ticket – it was because the house mortgage was really too much for my husband’s salary. We got by on overtime, and those extra paychecks that come in a 52 week year – as our budget was based on just 48 weeks. We asked for practical gifts (even homemade gifts would have been great) of things we needed at holiday time. We never made one payment late on anything and we never used our credit cards.
About 4 years into the new house we made an amazing discovery. We loved the house and the location, but we hardly saw each other. Hubby would go to work at 5:30 AM and if I was lucky if I was awake when he returned. He almost never saw his sons! Both of us were 100% exhausted by the end of the day – every day. He was working all he could and I was raising 2 toddlers, doing all the yard work, doing all the housework, shoveling chicken manure, making jelly, canning vegetables, baking from scratch, etc. We didn’t feel like this was the way we really wanted to live.
So, we decided to sell house #2 with the full intention of paying cash for our next house. In fact, we were determined to do it. Our parents were scared for us, as we said we’d move anywhere we could obtain a house without a mortgage. At the time, we didn’t know what we could possibly buy for that amount or where it might turn out to be located but we were committed to doing it.
Our house took a while to sell. It was after all a custom built house on a 5 acre heavily wooded flag lot, and that takes a special buyer – but it did sell. Selling price was $157,900. We found what we believed was the perfect house for us on the market, reduced to $114,500. It was less than one mile from the house we built (as the crow flies) and it had everything we had asked God for in our new house including one acre of flat land on a cul de sac in a nice residential neighborhood. Little did we know that God has a sense of humor, and although he provided everything we asked for, we got a few things we forgot to tell him to leave out. We kept that in mind for the next house!
Our offer on this house was $95,000 in cash, because that is what we had to spend, and it was accepted! We bought it and rented it back to the previous owners for 3 months so they didn’t have to get a new bridge mortgage for the house they were building. It worked out for both our families. The day we closed on that house, we felt as if every burden was lifted off our shoulders. There was now no need to stress over money. There was plenty of it now. Our largest bill was now history and this house was now totally and completely ours.
Oh, and though the Porsche is long gone (we needed the money) – we now have this in our garage, a 1983 Delorean (editor’s note: I’m so jealous!).
As you can see, not every decision has to be 100% perfect in order for things to work out financially, but you must have a laser focus to give yourself a chance at accomplishing the goal. When Johannah and her husband realized that the house of their dreams would not provide the lifestyle of their dreams, they began to focus directly on the solution, and THEY GOT IT!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.