HGTV, or This Home Sale Doesn't Make Cent$

I was curled up on the couch one night last weekend and tuned into my favorite TV channel, HGTV. HGTV is a Must Watch for me because their programming line-up is perfectly suited to the home owner and prospective buyer, and in some way I hope to learn at least a few useful homeowner tidbits by osmosis.

Imagine my surprise when I stumbled on a new show, "My First Sale." Intrigued, I settled in to watch....which turned out to be a big mistake, because my financial brain was gibbering in astonished anger by the time the episode was over.

The show opens benignly. We meet John and Jane Doe, a young newlywed couple living in Denver, Colorado. John and Jane recently purchased their first house together and need to sell John's childhood home. The couple enlist a real estate agent friend to help them sell the property. He reviews similar houses in the neighborhood and suggests John and Jane list their house for $170,000, a fair price considering its size and condition. But that's a problem. Why? John and Jane owe $189,000 on John's home's mortgage and a home equity line of credit.

Where did the money go? How could they owe $19,000 more than the house is worth? Well, John explains that he purchased the house from his parents a few years ago for $175,000. He met Jane, and took out a home equity line of credit to pay off some credit card debt before they got married. Oh, he used the HELOC to "pay cash" for a newer Nissan Xterra SUV. It's clear by John's calm explanation that he didn't realize he hit the Double Crown of financial DON'Ts touted by every finance expert known to man, 1) using your home equity to refinance unsecured consumer debt, and 2) confusing a purchase made with a HELOC with one made with cold, hard cash.

To add insult to injury, the real estate agent informs the couple that they'll need to pay him a 4% commission for selling the house ($6,800) and probably closing costs when the house does sell ($3,000), a whopping $9,800 on top of the $19,000 loss they'll have to pay out of pocket. The couple is understandably upset, and the episode goes downhill from there.

John and Jane finally sell the house after 117 days on the market. They receive an offer for $179,000 and pay $4,000 in closing costs. Because John and Jane received a tax refund and have paid the mortgage on the house for two or three months (!) while it sat on the market, they only owe $179,000 on the house at the time of sale, making their out-of-pocket expenses a mere $11,200 (not including the staging fees for the designer they hired to spruce up the property). At the closing interview, they express their disappointment about the money they have lost on the deal and John laments the loss of the house. "Who knew selling your house could be this expensive?"

Where did this couple go wrong?

• John took out a HELOC to pay down his credit card debt and finance a car purchase. If the couple had decided to keep the home a few years longer, this might have been an OK plan. But with the purchase of their second house, they wound up under water quickly.
• John and Jane purchased a larger second house before paying down their excess mortgage debt. In order to unload John's house quickly and relieve $1,400 of their $3,700 monthly mortgage burden, they had to take their lumps and pay a significant amount of money at closing.

John's childhood home was undoubtedly a relic from the 1950's, but it was fairly spacious (1,000+ square feet) and obviously was a good starter home in a desirable city. While John and Jane's new house is updated and has quite a few amenities, I personally did not see the financial advantages of taking on two mortgages and selling John's childhood house after the loan burden became too much. Considering John's emotional attachment to the property and the couple's negative equity, they would have been much better off paying down their debts, making improvements and selling the house in a few years, or renting it.

IN CONCLUSION, I say Thanks, HGTV for yet another show glorifying peoples' financial mistakes and making them look pedestrian. You've showed me how I DON'T want my first home sale to be, but will other people see the mistakes John and Jane made?

IMAGE CREDIT: Atlanta in the Know