As you’ll remember, we sold our home and ended up $3,000 in the hole. But no matter! Off we went to New Jersey. I should probably mention that I was pregnant with our first child during this transition to a new state.
Being pregnant, we really wanted to buy another home for our growing family. We met with a loan officer and explained our situation. We had no down payment, credit card debt, a car loan, and we were now a one income family. He should have laughed at us and sent us home. But he didn’t. He secured us an 80/20 loan instead, which is how we purchased our current home. Our home was 100% financed. We didn’t put a penny down. We had one loan for 80% of our home’s cost, and we had another loan for the remaining 20%. This allowed us to avoid paying PMI, which seemed like a smart move. The first loan was a traditional 30 year fixed-rate mortgage. The second loan was a 15 year fixed-rate balloon mortgage.
Balloon loans are kind of hard to understand, but I’ll try to explain it. Basically, the mortgage company figures out how much to charge a homeowner per month by dividing the loan payments/interest up over the course of 30 years (just like a regular mortgage). The big difference is that at the end of the mortgage’s term (15 years in our case), the remaining amount of the loan will be due in a lump sum. So even though the payments were set-up like a 30 year mortgage, the homeowner only has 15 years to pay off the loan. In order to get the loan paid off, he/she would have to make extra payments or try to refinance before the end of the loan’s term. These loans are risky, because if uninformed homeowners only pay the minimum each month, they will owe a huge amount at the end of the loan’s term. And if the house has decrease in value (think stock market crash of 2008), they won’t be able to refinance.
We moved into our home in January of 2006. In June of that same year, we had our first baby. 9 months later, we were pregnant with our second child. We realized that we needed a bigger vehicle to accommodate our growing family. After much searching we found a $7,000 used minivan in great condition. It was actually a really great deal. We didn’t have the cash to purchase the van (have you noticed a theme yet?), so we decided to put the van on our credit cards. Yes, we maxed out my credit card and then put the remainder on my husband’s credit card. What were we thinking?
Near the end of 2007, we welcomed our second child. We were managing to pay our bills, but things were tight. It was during this time that my husband began to question his pay. His employer had given him a raise when we moved to NJ (cost of living difference), but it wasn’t enough. After comparing his salary to similar companies in the area, he went to his employers to ask for raise. We were lucky that his company recognized how underpaid he was, and accommodated his request. This was a turning point for our family. We could finally purchase groceries without using a credit card.
Next up, you will learn what finally caused us to change our outlook on our finances. And thank goodness we did! I cringe to think of where we would be right now if we continued down the path we were on.