Tue Nov 3 17:14:35 PST 2009
I bought a nice home in Bella Vista, Arkansas, shortly after I hired on to Wal-Mart permanently, in early 1998. I paid about $54k for this home. It was built in 1979, was a little bit over 1000 square feet, had a new roof and a new heat pump, and was in generally good condition. Though the entire house (I mean entire) was covered in ugly carpet. Including the bathrooms and kitchen. The house was on about 2.5 acres of land, much of it steeply sloped. It was about 14 miles from downtown Bentonville. Later on, I bought the 2.5 acre lot next to us and the 3 acre lot across the street for about $2k and $3k respectively.
I married my best friend in late 2000, and we had our son in 2002. During that time, we ended up getting some huge medical bills that my wonderful employer decided to not insure, and it pretty much wrecked our credit. In fact, the last of that was paid back only in 2007. But our credit was well and truly trashed, and we had a lot of nasty bills over our heads. I was --this-- close to declaring bankruptcy in 2003, but it didn't QUITE make sense.
We always had the idea of buying a nice plot of land somewhere along the Missouri Arkansas border and eventually building a nice house on it. But the possibility of any such spending was pretty much ruled out because of our financial state.
During 2004, God told us to move out in faith and just start looking for a home on some land in Missouri. It was crazy and irrational, and certainly impossible, but we started looking. Within a week, we located a 20 acre piece of property with a 1450 square foot house on it. It was only a few miles down the road. The seller was motivated. The price was $165k. And we were struggling to keep up with our current house payment, which was (wait for it) $345/month at the time. So we started thinking, and a plan came through. We discovered that the house and land we had bought for $54k plus a few thousand in cash was now worth over 100k. The housing bubble was entering the height of crazy. So we very completely redid the inside of our small home. It looked great; new wood-looking floors, new paint, new stove, new fixtures. We did a bang-up job. But it was still a pretty small house, and we had to find a buyer. Oh, and we had to get a loan for $165k.
So, the plan. We would use the cash money we made from selling our Bella Vista home to pay off huge chunks of our debt. It turns out we could not turn this plan into a contract or anything that lenders would consider, so we had to simply get the loan without 'the plan'. Which is really crazy, given our financial state, but in those days, crazy loans were possible. Crazy being irresponsible. In the end, all we could qualify for was a suicidal adjustable rate interest only loan. And we took it, with the idea that we would then refinance a year later, which much improved credit.
So I'll skip some of the drama, which was extreme at times. We found a buyer for our home in Bella Vista, but she was barily qualified. So I took point on finding her a lender. Yeah, that's crazy too, but in the end, it worked and she qualified for a 30 year fixed loan for $112k. Except she had to some up with about 10k of downpayment. And she didn't have any money, and she didn't qualify for any secondary loans.
What to do. Even more insanity. I loaned her $5k and my seller loaned her $5k. Insane. Oh, and her funds had to be sourced, but not seasoned. So we had to give the cash to her aunt, who then gave it to her. I have no idea if that's legal or not. But we made it happen.
I was able to justify all of this by the simple fact that her monthly payment was actually going to go down slightly, compared to the stiff rent she was paying at the time. Plus she would be building equity. Great!
And so, the deal was done, and I helped our seller move his stuff to his new house, which was under construction a dozen or so miles away. And he helped me move our stuff. And our buyer had some of her family or someone help move her stuff.
Oh I forgot a piece of this. We decided to do the move well before all of the loans were approved. A good three weeks before. I just asked my wife why we did that and she said 'crazy faith'. So be it.
We made a good $50k in cash from the deal. Our seller made a lot more; I think he owed something like 30 or 40k on the house and land. He built the house himself, and the land was a lot cheaper when he bought it about six years earlier. We did use some of that money as a 10% down payment. We used the rest to pay off debts. Sealed the deal in April 2005, almost a month after we moved in.
So a year later, in mid 2006, after scrubbing our credit record for all I was worth, our credit score was substantially better. Still not great; on the edge of 'poor', but not quite 'poor'. We were able to refinance to a 30 year fixed rate of 6 percent. Turns out our monthly rate went down a little, because we were paying so many points on the first, toxic loan.
After I was laid off in February 2009, I immediately set out to refinance again, because of extremely low rates. And I did a streamline refinance with the same bank, and locked our 30 year rate in at 5%, which is pretty awesome. It had to be a 'streamline' refinance, because our property value had fallen tremendously. We were way underwater, and the streamline allowed a refinance based on the initial valuation. Basically, it allowed the bank to 'look the other way'.
At this point, we have paid off all but one of our old medical debts. We should be able to knock that one out next year or so. The only thing we owe on now is our land and house in Missouri. We own our cars and tractor outright. I haven't checked, but I'm sure our credit score has gotten much, much better. It probably hasn't been enough years for some of that ugly debt we paid off in 2005 to drop off, but it will over the next few years.
In the end, we leveraged the crazy housing bubble to our full advantage. We used the ability to get a really bad loan to get what I call 'funny money' from our property, which we used to get a very good, conservative loan.
Shortly after she bought our Bella Vista property, our single mom buyer was laid off from the real estate company she worked for. She had defaulted within a year. The bank she received her loan from, much of which turned into the 'funny money' that we used to dig ourselves out of debt, was closed by the government in 2008, one of the many bank failures that year. Too many bad loans that went bad. The bank that took over most of the holdings sold the property to some law firm, which put the house up for sale in mid 2008. It sold for $65k in late 2008.
Sometimes I think about where that $50k of funny money came from. Certainly not from our buyer. Not from her failed bank. Funny money indeed.
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