So I was asked a couples of weeks ago, how the hell did we afford our current home?  And last week I decided to talk about some of our financial mistakes/successes of our 20s.  But I haven’t really discussed what happened with our housing situation.

How did we ever get a $115k down payment and how in the heck did we manage to save it?  Well we got it from the equity from our last home.  We bought in the midst of the boom in Southern California.  We bought in the middle and sold at the peak.  Did we know?  No. Did we plan? No.  Sheer dumb luck.

Truth is that we bought a condo in 2002 because my DH was a foreigner and we couldn’t save in an IRA fro him.  Nor was a 401k available because he was a student. I had only an IRA available to me, as I mentioned, and I regret not maximizing my contribution.

So we decided we were going to stay in the area and we should buy something, since our rent was $1200/month.  Since we were young, buying a condo made sense.  We knew we weren’t going to have kids anytime soon, and while we wanted the extra space, buying a 2 bd condo just was unaffordable.  Our limit was $200k at the time, and honestly there were pretty much no 2 bd condos unless they were complete dumps.  We’re talking pee stained floors, holes in the walls, no sink, etc.

Thus we stuck to finding a 1 bd condo in a reasonable commuting location without being concerned about a school districts.  The market was early 2002 and realy HOT.  We had missed out already on 5 places, during our first weekend, through bidding wars.  We really were hoping to stay around $150k , but it appeared we were too late in the market.

Then on Monday morning, our realtor called my DH and said something just listed on the market at 9 am.  We should go see it at lunch and put in an offer, because based on price and location it was ideal.  I was working and unable to make it, so my DH took off and saw the place.

It was a gem.  Great condition, excellent location, reasonable HOA, and close to our target price range at $165k.  We immediately wrote up an offer and sent it off by 5 pm full price.  The seller accepted with a contingency that we close our mortgage in 2 weeks but not move until 6 weeks later when she moved into her new place.  We accepted and lucked out.  I hadn’t seen the place until the home inspection more than a week later.  Realize the market was so sizzling it was crazy.  The woman selling to us had bought for $70k less than 2 year before!

By the time we officially moved in, someone else had closed at $180k.   We ended up selling our place in 2005 for $260k.  We walked away with around $95k of pure equity.  We hadn’t paid a dime of closing costs and when we sold it was close to the peak price (around $40k less than peak, reached later that year)

This dumb luck allowed us to buy our next home with 20% down.  We had paid off a chunk of our mortgage from $143k to $120k in 3 years, instead of investing in retirement funds.  I though we had done well.  We had no debt, paid off a chunk of our mortgage, and our only mistake was not investing in a Roth IRA for me instead of the condo.

Looking back, if I were asked was it a mistake? I would say no.  The truth was, we thought in 2002 we were buying at the absolute peak of the market.  It had already skyrocketed for 2 years.  We THOUGHT that the prices would level off but the plan in 2002 was to live there 7 years (until 30), get pregnant, then rent out the condo and keep it for our first child.  We were only 22 and 24 at the time, so we thought the plan had lots of merit.

We could afford to ride out the downslide of the market.  We were content with our condo (570 sq ft), it had a parking stall, close to work for both of us (10 minute commute), washer/dryer in condo, and just a nice layout.

So our home equity?  Pure luck.  We made a dumb move which helped us get a foot in the door. But others would argue, wise move.  Why?

Most of our friends, coworkers said we were stupid for buying a 1 bd condo.  They said at a minimum we should buy a two bd.  And many wouldn’t buy a 1 bd because they were “saving” up for a 2 bd.  Turns out they bought at a much higher price a places that weren’t in as desirable locations as what we got.  Thus by being flexible, and rational about what we could afford, live with (570 sq ft versus 700 sq ft), we struck pure gold.