Seventy-five dollars. It’s the cost of a round-trip ticket from Miami to Chicago. A romantic dinner for two at a mid-range restaurant. An on-sale cashmere sweater.
For Julian Sanchez, it was the amount that kept him from purchasing his dream starter home.
The year was 2013. While the economy showed signs of bouncing back from the worst recession in modern history, the real estate market was just starting to sputter back to life.
Property values were at historic lows and FHA rates hovered around 3.375%. For those who could afford it, 2013 was the time to buy.
It was in this buyer’s market that Julian and I started working together.
For months,Julian and I visited properties in the Greater Los Angeles area looking for Julian’s perfect starter home.
After crisscrossing the LA Metro area, Julian finally found a property that seemed to fit the bill.
Not only was it attractively located in one of North Long Beach’s rapidly gentrifying neighborhoods, but it was right next to Julian’s mother’s house. For a family as tight-knit as the Sanchezs, this was the icing on the cake.
On top of the prime location, the property was listed at $395,000, well within Julian’s budget.
Unsurprisingly, we pounced. Within weeks, we’d nailed down the contract and received mortgage approval. After all of the numbers had been crunched, the mortgage came out to $2,575 per month.
That’s where the trouble began.
While looking for a house, Julian had set a strict $2,500 budget for his monthly mortgage payment. In other words, his dream property was $75 over budget.
For the loan officer and myself, this $75 shouldn’t have been a dealbreaker. Sure, we weren’t the ones on the hook for the monthly payment, but we also weren’t trying to pressure Julian into living beyond his means.
It was 2013, after all. Memories of the subprime mortgage crisis were still fresh and those in the real estate field were much more conservative with their financial advice than they’d been in years past.
But no matter how much we tried to reason with Sanchez, he wouldn’t budge. If we couldn’t get the mortgage under $2,500, then no deal. Julian even went so far as to fire the loan officer, accusing him of engaging in high-pressure sales tactics.
Unfortunately, no amount of wheeling and dealing could get the mortgage to fit Mr. Sanchez’s budget. In the end, he gave up an attractive property in an up-and-coming neighborhood and the chance to live close to his mom—all because of a $75 discrepancy.
At the time, I viewed the scenario as a frustrating almost-sale, but in the decade since, I’ve come to see it as an illustrative example of how the real estate market works.
The lesson I took from the whole affair was that when prices and rates are low, it’s time to buy, even if the monthly mortgage payment ends up being slightly over budget.
In other words, find other ways to save, but don’t count yourself out of homeownership over $50, $75, or $100.
Because if there’s one thing I know, it’s that the market will continue to go up. With enough time, your home’s value will increase significantly and that extra money you kicked in for the mortgage payment will look like pennies.
Take the home Julian Sanchez passed on. Today, that property is valued at around $950,000. It only took nine years for the value to increase more than 300%.
What’s more, at the current FHA rates (around 4.125%), a monthly mortgage payment on that property would be around $5,500, in other words, more than double what Sanchez was willing to pay back in 2013.
Of course, it’s easy to look back once all of the figures are available and say that Julian Sanchez made a bad calculation when he passed on the property.
Knowing what we know about the market gives us the ability to judge his decision as a short-sighted mistake that prevented him from gaining wealth in a massive way.
Still, it’s also important to empathize with his choice.
Mr. Sanchez couldn’t have known how much the market would change in such a short period of time and was (rightly) concerned about having enough money to pay all of his monthly bills. Maybe paying $2,575 a month really wasn’t possible for him.
While I dont have a crystal ball,my experiences with clients Julian have taught me that scrimping a bit now is worth the money you’ll gain as a homeowner.
That’s especially true here in Southern California. Despite the headlines claiming that Californians are leaving the state en masse, the population keeps expanding, and with it, the demand for housing.
With demand this high, acting now is essential if you want to avoid being priced out of homeownership.
Not only will buying now ensure that you’re not priced out of the market, but who knows how long interest rates will stay as attractive as they are now?
So, if you’re asking yourself “is it a good time to buy?” The answer is yes.
Contact me today to talk about making your homeownership dreams a reality.
