Success Story: Erik and Charlene Abretske
Five years ago, at the height of the real estate boom, Erik and Charlene Abretske thought they were missing out on the American dream.
The then newlyweds wanted to buy a home but were dealing with financial issues -- a bankruptcy -- that made qualifying for a 30-year, fixed-rate mortgage in their overpriced San Diego County market nearly impossible.
"We really felt like we were missing out," says Charlene, 39, a business adviser for spas and salons. "Everyone else was taking a step we were not taking, and we were wasting money every month on rent."
At its peak, Charlene and her husband paid $1,400 a month on rent, spending nearly $100,000 in rent during the eight years they rented together.
But in March 2008, the couple noticed prices were falling -- right into their price range.
They sat down with a family friend, who is also a mortgage broker. He gave them a price range and strongly recommended they stay within it, regardless of what they were approved for by the bank.
The Abretskes had no issue with his advice.
"We wanted to make sure we found something we could afford," says Charlene.
They even decided to look on the low end of the range, knowing they would need to budget in property taxes, possible association fees and other homeowner expenses.
"We never want to be in the tighten-our-belt mode at the end of the month," she adds. "We wanted to keep it like that, even with a home."
They began seriously searching after Erik received a raise that would compensate for the increase in their monthly expenses.
"We were just looking for a good deal," says Charlene. "In southern California, to find any home that's habitable for under $250,000 was great."
Surprisingly, they quickly found a foreclosure: a small two-bedroom, two-bathroom home with a center atrium and a two-car garage, situated about three miles from the beach in Oceanside.
And they bought it for $219,000, far below the $300,000 they thought they could afford, and the $405,000 Charlene found it listed for in June 2005 -- about a year before home prices peaked.
The bank-owned home was the first they had looked at that was in move-in condition. It was freshly painted, clean and had new carpets, says Charlene.
The first-time home buyers liked that it was small -- less than 1,100 square feet.
"We didn't want anything too big to take care of," she adds. "It's a great starter home."
The couple financed the purchase with an FHA loan.
By having the Federal Housing Administration guarantee their loan, Charlene and Erik were able to qualify for a competitive interest rate of 6.35% despite their less than perfect credit.
They closed in just months. Although Charlene doesn't feel good about taking advantage of someone else's misfortune, she's glad that she and Eric could benefit from the down market.
Their mortgage, taxes and association fees total about $1,900 a month, which isn't too much more than what they were paying in rent.
"We never dreamed we would have the sweet little home in the location we do, and it never would have happened without the downturn in the market," says Charlene. "I don't know if we got in at the bottom of the market. It may go down further, but we got a heck of a deal."
She offers the following tips for those looking to take advantage of falling prices to purchase a home:
- Look realistically at your bills and know what you can afford. "Our real estate agent kept saying, 'You could afford more.' We knew what we could afford because we kept track of it."
- A home is an investment, but don't listen to anyone who says you'll make a killing in just a few years.
- Don't forget to budget in for home repairs. A tree fell on the Abretsks' home the first week they owned it. "It was a rude awakening to home ownership, but it could have been a lot worse."
- Explore your loan options. By using an FHA loan the Abretskes were able to make a much smaller down payment -- 3% of the purchase cost -- than with a conventional mortgage, which would have required at least 5%. (Since they closed, the FHA changed its rules to require a minimum down payment of 3.5%.)
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