When I bought a home out of foreclosure in 2009, it took over 1,000 hours from beginning to end.
I visited properties, looked up county tax records and considered neighborhoods while researching comparable home values. I assembled a team that included two tenacious real estate professionals; a first-rate contractor; a mortgage broker to help navigate the tangle of Federal Housing Administration, Internal Revenue Service and city and county regulations; as well as my parents.
To anyone driving by, my home is a modest bungalow in Edgewood, a working-class neighborhood about two miles east of downtown Atlanta. To me, it is a labor of love in a community I consider my adopted home.
I wasn’t sure what it would mean to a banker, though. Three months ago, I decided to try to refinance my mortgage, knowing that the current record-breaking low interest rates would not last forever, and that they represented the best opportunity in more than a generation to finance a home. To get approval, I had to have an appraisal of $135,000 or higher.
Sales activity had been brisk, so I felt confident in my home’s value. But I had also received enough alarming alerts from Zillow.com, the real estate tracking webite, to justify my concern. My monthly e-mailed “Zestimate” from Zillow dropped 4 percent, then 8 percent, then in just one month a heart-stopping 25 percent.
On January 6, the envelope arrived from Wells Fargo. As I held my breath and opened it, I realized that the letter was a verdict of sorts. The bank was rendering judgment not just on the economic value of my time and investment but on whether I had done my part to help the neighborhood recover, too.
Edgewood was built to help meet growing housing demands among the working class in the early 1900s. After World War II, the middle class fled for the suburbs and the neighborhood faced a period of economic malaise. But by the 1980s, homes in Atlanta neighborhoods had begun a slow process of regaining value -- and the more controversial processes of gentrification, which can raise a neighborhood’s property values but also displace lower-income residents.
Edgewood has trailed somewhat behind its neighbors in this regard, which was probably one reason I was able to obtain this particular house. But it seems to be next in line. A large shopping complex with a mix of big-box retailers, restaurants and high-end boutiques that opened in 2003 was an early sign of the Edgewood renaissance.
The economic crisis, however, was a major setback for the neighborhood’s development. According to Trulia, another real estate tracking Web site, the median sales price in Edgewood, which was $101,698 in the first quarter of 2012, has dropped 20 percent since last year (and 37 percent since five years ago).
In my county, DeKalb, there were over 10,000 new foreclosure filings in 2011, according to the Atlanta Regional Commission’s report on foreclosures, to say nothing of homes sitting empty because they are in limbo with the banks or because investors abandoned them.
In 2009, I decided to take my shot at buying a home, knowing that the low housing prices left in the wake of the housing bubble might be the only chance I would ever have at homeownership.
Despite my considerable student loans and lack of cash, I thought that a mix of down-payment assistance programs, a generous first-time home buyers tax credit, and an F.H.A. loan might give me the opportunity to realize an American dream that just two years previously I was sure would never be for me.
But despite the many down-payment programs I was eligible for, each step of the way was fraught with obstacles. Many of the cheapest homes were not eligible, often for problems that could under any other circumstances be readily resolved, like a lack of kitchen appliances or a single broken window (FHA has strict requirements regarding the state of a home). Some beautiful houses were available at extremely low cost but needed extensive renovation, which also disqualified them from the down-payment programs.
It also became clear early on that the banks would seriously consider only cash offers, and nearly all the homes I was considering were owned by banks. To make my purchase possible, my parents, who are not wealthy, offered to front the cash using money from their retirement accounts, with the understanding that I would buy the house back from them for the full amount once the necessary renovations were made.
It worked. Our offer was accepted in August 2009. My contractor kept to our strict timeline, and I moved in on Oct. 31, while workers were still installing the kitchen sink. By February 2010, I had bought it back from my parents for the total cost of the original purchase and the repairs, borrowing $100,000 to do it. This left a 15 percent equity “gift” to cover my down payment on the loan.
In October 2010, The New York Times ran an article describing my adventures, and after it ran, some readers voiced concerns. Some people said that my decisions were precisely the kind that led to the housing crash. After all, given the ubiquitous threat of unemployment, homeownership was too risky for most people, let alone for someone like me who could afford only the cheapest of properties and smallest down payment.
But to me, my long-term risk in buying a house was low. Losing my job would be equally harrowing whether renting or owning, and besides, I was reducing my monthly outlays from when I had been a renter, to roughly $800 from about $900.
From a purely financial perspective, however, only the bank’s opinion of me and my work on the house mattered. And in January, when I opened the appraisal envelope, the bank offered its affirmation. My new appraisal came in at $150,000. When I had applied for the $100,000 loan, I received appraisals of $130,000 and $145,000. Seeing that my home’s value had gone up as much as 15 percent in the eyes of my appraiser was splendid news.
Based on this new appraisal, I refinanced into a 20-year fixed-rate loan at 3.875 percent. This took eight years and 1.375 percentage points off my original loan. I’ll be saving around $100 a month in mortgage payments and fees and around $56,000 in interest over the life of the loan. But if I continue to pay more than the minimum payment, I will very likely have my home paid off in about 14 years, which will save me an additional $23,000.
My neighborhood still has its challenges. But with interest rates low (and rents high), home-buying is once again a bargain for many. Each week, I see young couples snapping up little bungalows in my area.
As for the economic comeback at large, many experts believe that the recovery of the housing market is necessary to the recovery of the overall economy. And now I know that I’ve done my part. Rehabilitating an empty home is good for the community; it improves home values for everyone on my street. So I don’t see buying a foreclosed home as taking advantage of others’ misfortune or making risky decisions that will contribute to the next crisis.
Quite the contrary: as the employment situation improves, young adults will have the opportunity to make the same move that I did, and we will play significant roles in stimulating further economic recovery. I hope we will be able to do it with less personal debt and more savings, which will lead to greater overall stability.
Remembering how certain I was just three years ago that the American dream had drifted out of reach, it feels remarkable to look around at my little home, my growing equity, my affordable cost of living and my lovely neighbors, some of whom have lived here for nearly 70 years.
Sure, I haven’t forgotten the guts it took for my parents to do what they did, nor the hundreds of hours of manual labor I poured into every corner of my home. Still, it’s hard to imagine a more favorable market for young Americans and middle-class families to try to do what I did.