To Your (Financial) Health III
by James C. Hess
One of the biggest purchases you will make in your lifetime is the purchase of a house.
If you are like a lot of people nowadays when you buy a house you won’t do so with a conventional mortage: Twenty percent down, minimum. Instead you will probably buy a house with no money down. Why not? After all, when he was President of the United States of American, Bill Clinton repeatedly asserted that anyone who wanted a house should have one.
Even though they might not be able to afford it. Especially when it came to that ballon payment that came due after sixty months.
Several years ago a fellow I will call ‘Ari’ came to me, seeking my assistance in resolving his financial health, which was very poor. Which should have been excellent, given he made over one hundred thousand dollars a year. But since he had almost two million dollars in debt he was on the verge of a breakdown, in more ways than one.
A debt, incidentially, that attributed much to his house.
Ari bought his house for $450,000.00, with zero down. Four thousand square feet on four floors, with four bays in the garage, and a ten thousand square foot lot.
He bought his house because he was convinced by a bank representative and a real estate agent he should. He was convinced to buy his house because he was led to believe he could.
Ari’s mortgage had, as many houses nowadays do, a sixty month/five year balloon payment equal to several months of payments. Ari missed paying it. Along with about two dozen monthly payments prior to that.
As a rule, when this sort of thing happens the property in question is seized by the bank or financial institution that holds the title and sold at auction. But the bank that held the title to Ari’s property already had far too many properties in default and they simply didn’t want his house or the hassle involved to sell it.
A fact, then, that worked, at least for the moment, to Ari’s advantage. It allowed him the opportunity to find a solution to his situation that did not involve bankruptcy.
But time was not his friend. In a very short period of time something had to happen to rectify his financial health.
A few days after I convinced him to eliminate certain expenditures from his life I received a telephone call from a real estate agent I know, who is constantly after me to buy a bigger house or invest in real estate.
Once we had gotten the small talk out of the way I surprised him by asking if he would be available to help out in a real estate matter.
He actually dropped the telephone as response.
Really, he asked, having recovered the phone and his professional composure.
Really, I said. Then I explained the situation to him.
There was a momentary pause on the other end of the line and then he said, quietly, I think I can work with this.
I introduced Bob–the real estate agent–to Ari and explained the proposition to Ari: Bob would buy his house, and Ari could then buy a more affordable property.
There were, of course, conditions to the sale: Ari had paid $450,000 for the house, but Bob would buy it $350,000 and pay the bank what Ari owed. But Ari would receive enough in cash to make the down payment that would allow for a conventional mortgage: Twenty thousand dollars.
At first Ari was reluctant to accept the deal, but as he gave thought to the matter he came to the unavoidable conclusion it was the best deal he could find, given the circumstances of his situation.
Bob was not without compassion: He gave Ari ninety days to move, once he had found a new house.
Motivated, Ari began looking for a new place. In less than two days, with cash in hand, he found a perfect place: A townhouse with 1,200 square feet, a two-car garage, and almost no yard.
The asking price was $100,000.00. Given the twenty thousand he had in hand Ari was able to secure a conventional mortgage, of fifteen years, with a balance of about eighty thousand, which made his monthly payment of less than five hundred a month. On his income that was a easy expense.
Again, he was hesitant to do so, but in the end he followed my advice.
And that was just the beginning to his achieving new-found financial health.