Refinance

It’s Monday – let’s talk about money honey.  moolah.  benjamins.  greenbacks.  dough.  skins.  bones.

Let’s talk about our situation with money.  Jeremy works at a sales position…and with most sales positions there is the salary and then the commission.  It’s the companies way of keeping things moving – giving the sales guy some motivation.  And the company usually expects a certain amount of sales…duh.  Which in turn means that sales guys can generally estimate how much they are gonna make at any given point if they hit their goal.  My darling boyfriend, being the overachiever that he is, has always hit or exceeded his goals.  So I say that to preface the fact that in our old house, we knew that we could live comfortably with only his salary – and his commission was for paying off past debts, renovating, and then fun stuff (like vacations to Dominican Republic).

When we bought this new fancy dancy whale of a home, we knew that it would require us to still contribute a little over at the old house (since it was a lease-purchase like we explained in this old post) and that we would depend more on Jeremy’s salary AND commission.  AND that I would need to bring in a little each month to keep us afloat.  Basically we are saying outloud with a megaphone – hello, we are housepoor.  And that’s okay because we chose it going into this situation.

Some folks ask – What do you mean, you are broke?!  like broke broke?

To which I reply – we make enough to cover our bills, put food on the table, tithe and celebrate special occasions – but we don’t contribute on a monthly basis to a savings account for Will’s college, for emergency savings (we have a small fund already in savings but it’s nothing major) or a retirement fund beyond Jeremy’s work.  We do purchase some things for our home with a strict budget – only because it helps feed this blog which in turn makes us a little money.  a very very very little bit of money.

I am telling you all this to not just keep it real…although I do love to do that on occassion.  I am telling you all this because I want to emphasis what an impact our decision to refinance is having on our lives.  We are saving over $220 a month!

Now that you know the punchline – here’s our story –

When we bought this foreclosure, we knew we were getting a great deal based on the size of the home and the size of the lot.  Granted things are different in different areas of the country (or Australia – Howdy Mates!) so it’s hard to compare anything…so don’t try.  We do live out in the country.  Not the burbs.  The country.  I have to drive at least thirty minutes to get to the nearest Target.  SOooo….we bought our 6000+ square foot home with the five acre lot for less than $300K.

The type of loan we used was a government program called an FHA 30 year fixed.  The interest rate was 5.25% and our monthly payment was $2293.  This payment included the principal and interest, property tax, homeowners insurance, and mortgage insurance premium (aka MIP – which basically backs the loan in case you default on your mortgage – I think it’s called private mortgage insurance or PMI for other types of loans).

So the first thing we did was ask for a reassessment on the property tax.    You see, the tax people had our house assessed at a $370,000 value…and were taxing appropriately.  But we didn’t pay $370K.  So Jeremy went down to the county’s tax assessor’s office and they changed it according to our sales contract…and he also applied for homestead exemption…all in all, for two very simple things – we are probably gonna save $50 – $100 each month (starting in May) because of the decrease.

Then we started researching programs to refinance.  Different companies do different programs.  For example, our local bank Wells Fargo would have cost us $8K more than the program we chose – so it’s important to do your research to find the best fit for you and your situation.  We ended up finding a program for FHA loans through New American Funding called a FHA streamline refinance program.   It’s a no/minimal documentation program with no appraisal needed.  It’s main objective is to get us FHA-ers into a lower interest rate…thus making it a simple rate refinance.  Long term – saves us money.

So after a bunch of paper signing with the notary (who bonded with Jer over talks of video gaming),

(it was a grand time – don’t let them tell you otherwise.  And yes, I am no longer ashamed to ask random people to take their photos – even if all we are documenting is “sign, initial, sign, date”…or giddy smiling during a self-portrait.)

With our new paperwork officially done, we have worked our way into the same FHA 30 year fixed type loan…but this time with a 3.75% interest rate (that’s a 1.5% decrease) making our new payment $2,071 per month (a $222 decrease) which is expected to drop even less when our property tax reassessment becomes effective in May.

 

But it’s gotta cost something, right?!   Well, sure.  But to avoid all the extra details I will just cut to the chase…our old payoff for the house was $280,657 and now the new loan amount is $281,386 (that’s a $729 amount that they rolled into the loan total).  Which means that if we chose to save our $222 that we saved on a monthly basis and put it toward the principal – we could be back at our old payoff in four months.

 

And the real reward?  Well, besides saving $222 each month plus more come May – is the long run amount.   Estimated roughly at about $80K.  Here’s my math:

  • OLD PLAN:  30 years x 12 payments x $2293 = $825,480
  • NEW PLAN:  30 years x 12 payments x $2071 = $745,560
  • DIFFERENCE:  Estimated savings over life of loan = $79,920

All you math whizzes and loan officers and refinance gurus don’t correct me or quiz me please, this is my best rough estimate.

The point is this…we refinanced.  We saved money on this dream home of ours.  and now I’m off to buy some shoes.  kidding.  only a little :)

Anyone else refinance lately?  Penny for your thoughts!

 

p.s.  HOLY FREAKING HAIRY MOLEY.  You guys put Bower Power in the finals over there at the Homies.  IN TWO CATEGORIES!  Do you know what that means?  It’s BIG.  It’s like putting a Drag Queen in the Miss America Pageant…and with your help, I could actually place in the top three…spanx and all.  I beg, I plead, I wish on stars & airplanes in the night sky that you pretty pretty please cast a vote for me.  (yes, it requires a little registration but they won’t send you any junk)….Click Here….and Click Here…and even if I don’t place – well, I count each and every one of those votes as a dream come true.

Comments

  1. says

    In the process of refinancing as well :), we’re dropping our loan amount a full 2.5% by moving into a VA and saving quite a bit of dinero! Yay for low mortgage rates and hopefully they stick around!

  2. Rosie says

    G’Day from Australia…….

    Yes Aussie properties prices are a joke but in saying this you could get a decent property in the country for a lot less than the city…. Of course nothing with charm or potential like your whale…..:)

    Good on you for showing how you can work smarter not harder…

    I recommend people also look at all their utilities as well. Getting rid of credit card debt b4 u do anything else…..

    Also a tip is that if you get a daily coffee, donut buy lunch, a bottle of water a coke try to stop doing this for a week and then each time you would have spent those coins put them into a jar and examine how much the little things actually add up… If you can live without the little things keep putting the money you would have spent in a far and at end of month you will have money to either put on Mortgage or to give yourself a bigger treat/night out.

  3. Aussie Deb says

    Quite different in the land down under, we have a changing interest rate loan which means that every month we wait for the announcement saying ‘don’t go up, don’t go up’.
    We’ve just refinanced some extra debt (my uni fees, car loan) into our mortgage to tidy up our monthly bills. Its just having the discipline to still pay the extra that would have that portion paid off in a few years and not stretch it out over our 25yr mortgage.
    Oh and the discipline to stay away from shoes.

  4. says

    Great job on the refinancing! We did it last year and it saved us a bundle since we were able to get rid of our PMI. With the current interest rates everyone should really check into it and your entry will definitely inspire a couple more to do it I’m sure :) Everyone was so excited voting for you I went over and voted too – good luck!!

  5. Margaret says

    I am so glad things worked out for you!!
    I just looked into the place you used but they aren’t available in or area (PA) bummer!!
    We just tried to refinance with TD bank. We were at the Home Show here in Philly and they stopped us. We didn’t think we could refinance because we were only in our house for 2 years and the house prices in our area have already dropped. it turns out we were right because we weren’t able to get the loan. The people from TD bank that worked the home show pretty much lied and told us whatever they thought we needed to heard to apply. I’m guessing they got some kind of commission for getting people to apply at the home show. Now we are stuck paying for an appraisal. At the home show they told us that our house would only need to appraise for what we were asking for. It appraised for 10,000 more than the loan we need but they turned us down because they said they require 20% more. they also told us we wouldn’t be responsible for the appraisal unless we changed our minds and they told us there would be an FHA option. All of it turned out to be lies. I guess it’s on us for not seeing/getting it in writing. The whole thing was very upsetting

  6. Jamee says

    I agree with Megan. LOVE your honesty. You’re so gutsy to put it all out there, especially about money. It is so refreshing and appreciated!:)

  7. Megan Smith says

    Katie,
    Did you vet this New American Funding through the FHA website? Just wanted to see how you made sure this was legit and not some fly-by-night company….When you decided to go with them, did they just work with the company who currently holds your mortgage to get it refinanced? Thanks for the info!

  8. Allison says

    How did yall apply for homestead exemption? I thought that was for only people 65+?

    How did yall get your tax adjusted to your sales price? Taxes are suppose to be on appraisal value I thought. We bought a foreclosure home too and only paid 60k but its appraised at 120k, but we are taxed on the 120k, so getting it down to the 60k would be AWESOME!

    Curious because I want to see if I can do it too. Every penny helps! THANKS! Appreciate the answers

  9. Julianne says

    We refinanced as soon as Wells Fargo opened up the Harp 2 program and are saving $400 a month. Woot! This was our first step towards moving and making our townhouse a rental. I envy you your location; MD is a horrible place to try to buy a home as even the tiniest, oldest, nastiest homes top 300k. Where are my tiny violins?!

    Congrats on being a finalist!

  10. says

    Congrats Katie!

    My hubby and I decided to to a HARP refi – we dopped from 6.375% to 4% and saved roughly $178/month. We also owed for 26 more years, but managed to get it down to 20 years. With that said, we are probably going to roll the extra $178/month back in for additional principal payments to payoff our home sooner.

    Yay for low interest rates!

  11. says

    Thank you so much for posting about this! The hubs and I are in the process of buying a home right now with an FHA loan and I really appreciate your candor about the pricing breakdown. We’re also looking in the country, although we’re looking around Charlottesville, VA and the bubble never really burst up here, despite what anyone says. The tiniest, shabbiest, brick-iest homes are in the low 3s. We’re having more luck in the country, but I admit that even with the foreclosure, my mouth almost bounced off my desk when I saw the price of your house. WHAAAAAAAAAAAA??? Amazing. That is so awesome, I am really happy that you guys have had this opportunity to snag this house. Fingers crossed that we’ll be able to say the same in a couple of weeks here!!

  12. Mrs. Smith says

    You mentioned that you guys weren’t currently contributing to a retirement fund beyond Jeremy’s work- does he have a company match? My company doesn’t currently do anything like that so I’ve been saving in a target retirement date roth IRA.

  13. Amanda Z. says

    We are actually signing paperwork tonight to refinance with an FHA loan. We’ve been in our house for 6 years and this will be our second time refinancing – the first time we got a home equity loan which we used to remodel our kitchen (seen here on Young House Love http://www.younghouselove.com/2010/02/reader-redesign-tile-for-miles/)

    This time we are only saving $116 per month, but I also work part time (3 day week, then 4 day week). By going to all 4 day weeks those 2 extra days per month + the refinance really add up (over $300 per month).

    I also do not contribute to my retirement – really don’t care since I have about 33 years to go!! Instead I put $50 per paycheck into my savings account. With a little boy who just turned two, I’d rather have that money accessible for expenses our family may currently need.

  14. Elaine says

    Good for you guys! I spent the last few months looking at all the bills trying to come up with “creative” ways of reducing them! I cancelled our cable and bundled the TV with the phones and internet and saved $125/mo! I called the gas and electric companies and inquired about reducing our monthly budget payments, and guess what? another $230/mo reduction! I also cancelled magazines and book clubs so I would not impulsively buy buy buy!! :) Little changes here and there add up on the bottom line! Good luck to you with your changes!

  15. Laurie S. says

    Voted for you. Found you through YHL and check on you daily now. I just did the streamline too. 5.25% to 3.75%. I’m going to save $153 now and will save an additional $240 when the MIP falls off. Sucks that MIP increased since I bought in Jan 2010, but at least it is tax ductible (through 2012 anyway). They better vote to keep MIP tax deductible after 2012! Love your blog. Beautiful family and dreamy house.

  16. says

    We’ll also be refinancing! Although, for FHA loans, in June the prices of Insurance Premiums are going down again, so we’re waiting for that. Our original loan is at 6.75%, with monthly payment of $1,327 including the $70 or so for insurance. Our new quote for the Streamline is 4% with monthly payment being $1,065 including $160 for insurance (when you refinance your insurance almost doubles), but in June we’ll be able to get 4% with monthly payment being $985 including $80 for insurance. I cannot WAIT. The savings is INSANE! :)

  17. says

    Thanks so much for being open about money! I think it’s awesome to be able to compare how other young couples are navigating all this stuff. I share all our financial info on my blog in the hopes of generating more open discussion. We’re hoping to refinance this year too!

  18. Catharine says

    There are far too many posts to read to see if someone else suggested paying your mortgage weekly or bi-weekly instead of monthly. You can knock YEARS off your mortgage with that. Ours went from a 35 year mortgage to 29 years!

    • says

      Actually you are the first to mention it I believe but yes – we do that and it’s amazing how just a couple weeks can reduce the payoff in the long run!
      Great suggestion!
      xo – kb

  19. says

    This was such a helpful post, thanks! You mentioned that you guys manage on a single salary – but what about your photography business? If you haven’t done one already, I’d love to read a post about how you developed your business.

  20. Marilyn says

    Hey Katie,
    Just wondering if you guys are doing bi-monthly payments? You don’t pay anything extra, your payments are just split in half and paid every 2 weeks. It takes 7 years off the back end of your home loan. So, your 30 yr loan would actually be only 23 years with no extra outta pocket! My hubs and I just bought a foreclosure (8 months ago) AND expecting this June (girl!!). So I understand EXACTLY what you are going through doing projects bit by bit and how every penny counts.

    Hope it helps! God bless.

  21. Chad Church says

    Hello Bower family. I work at New American Funding and can’t thank you enough for your blog. New American’s employee’s are awesome as we all care, we really do. We are consumer advocates, we look out for our clients, we care and we build long term relationships. Was great to see photo’s of you signing loan docs as we don’t always get the chance to meet face to face. So happy you got a loan when you did as rates are great. So….. Thanks for taking your time to share and congrats on your soon to be new addition to your family.

    • says

      No thank you Chad! We are beyond thrilled with our new rate and we hope that others do their homework to find the best solution for their own lives!
      xo – kb

  22. Judy Clark says

    Katie:

    Love, love, love the china cabinet. You have truly inspired me to paint my cabinet which is just like the one that you purchased. I realized after seeing yours how ugly mine is (smile). Well, I can fix that!

    I want you to know that I have been following your blog for several years but never posted to your comments. Sorry! You are so talented and fun. Your little Will is the same age as my Granddaughter. Children are so wonderful…especially Grandchildren.

  23. says

    We re-financed last September went from 5.5% to 3.25% and brought our payment down $300- we were shocked and so happy we went through with it. We were honestly being a little lazy and didn’t feel like doing the paper work at first, when my mom suggested it to us (she’s a realtor), after we found out what we could save I didn’t care if was 10 days worth of paper work!

  24. Kat says

    Katie, we’re thinking of going with New American based on your recipes, but I checked hello and there were some very bad reviews. Are you happy with them?

    • says

      Well, we figure there are bad reviews with a lot of good companies. I just want to encourage everyone to read all of their paperwork and know exactly what they are getting into with any refinance!
      xo – kb

  25. Wendy says

    We kinda did the opposite. We refinanced from a 30 yr to a 15 yr at a lower rate. Our payment increased $104 a month. But, over the life of the loan, we will save more than $200K in interest over the life of the loan.

  26. says

    We refinanced to a 15-year from a 30-year and are only paying a little less than $200 a month for it. Before we did that, we paid an extra mortgage payment a year – by taking a monthly payment, dividing it by 12, and adding that. By doing so, you can reduce a 30-year to a 19-year and not refinance. Amortization!

  27. says

    Hey Katie,

    I know it’s a bit late but thank you so much for the shout out! All of the folks here at New American Funding saw the blog and were so proud that you mentioned us and that we were able to help you start on your adventure.

    And to Kat above, unfortunately we do have some bad reviews on Yelp, but we also have great ones! Check out the filtered reviews (which sadly Yelp hides) and New American Funding on the BBB!

  28. KJ says

    I think it’s great that you are so open about your finances. I think financial illiteracy is a huge problem in our country. It seems parents aren’t doing a very good job teaching their kids about money; the best place for them to start would be at home by sharing their personal finances. Your PMI/MIP doesn’t “get” you anything so I would work on plowing any extra money back into your mortgage principle until you are allowed to drop it. Double money in your pocket (savings from no more PMI/MIP and BIG savings from less mortgage interest overall).

    I find Dave Ramsey’s website (http://www.daveramsey.com/home/) very inspiring; we don’t have any debt other than our mortgage. I’ve never considered paying off our mortgage more than a few years early to be possible. But recently we refi-d from a 30 to a 15 year mortgage, and I am working on *seriously* ramping up extra princple payments. I really want to pay that sucka off in less than 10 years!!!! Wish us luck!

  29. says

    My jaw just dropped. I cannot believe you were able to buy that home for under 300k. Ath that square footage!!! That is A-MA-ZING. All of the sudden I think my family needs to move to a more affordable area.

    We live in a very expensive vacation area in Northern California (Lake Tahoe), and you cannot really buy an empty 1/4 acre lot here for less then 200k.

    Crazytown.

  30. Andrew says

    I don’t know if any of the other commenter said this, there are too many to read BUT, you might want to look into changing your payments from once a month to bi-weekly. Our mortgage was exactly $1000 a month, they split it into a bi-weekly payment of $500 and we’ll pay off our mortgage 6 years earlier and save over $70k in interest.

  31. Ma-ma-ma says

    The biggest thing to remember is that not everyone will even qualify for a refinance, depending on your state. In mine, for example, you must have a certain amount of equity in the home first. Like Katie said, do your research before you start in on the process.

  32. Natalia says

    Hi Katie! I was wondering how you guys found out about this website (just searching online?). I would love to find a similar program (sadly, this one isn’t offered for homes in NJ)

  33. Natalia says

    Hi Katie. Few more questions. We are currently looking at similar progams. We got 3 quotes in total and the most recent lender gave us a good faith estimate. Did you guys also get one? If so, did it list higher estimated settlement charges than what you paid at the end? You probably don’t even remember:) but I figured I’d try. Our GFE lists a pretty high estimated settlement charge but our lender is saying they will cover those costs. I’m just wondering if you had a simiar experience, but I know some fees really vary by state so it may be competely different in Georgia. Also, did you have to pay the first mortgage payment upfront or the first two? Just trying to get some comparisons from someone who went through a similar thing. Thanks! Oh and don’t worry, of course we are doing extra research and reading EVERY SINGLE LINE before we commit to or sign anything.

    • says

      I think you are required by law to get a Good Faith estimate so yes, we did. Usually if it’s a good lender, the estimated settlement charges will be more than what is actually going to happen. For our refinance, we received a months mortgage payment ‘break’ and did not have to pay that upfront so it was like skipping a month. Hope this helps.
      xo – kb

  34. Michael says

    Hello Katie:

    We just completed a refinance and our mortgage is now with the VA and a bank in the midwest. It took some time to complete the task and we will not do it again, especially through HARP which allowed the corrupted credit system to block us by allowing insidious entrapment data submitted by Wells Fargo. We could not be approved and they knew that would keep us chained to Wells Fargo’s schemes to drain our money for those greedy investors.

    We are satisfied with our present arrangement.

    Sincerely,

    Michael

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