Hey The White Tee Way readers! Here to share another experience and task I recently completed: I refinanced my property! I realized I should have posted this first before the driveway was done, but I was so excited about the driveway I pushed this post back one week. If you aren’t sure on what a refinance is, please be sure to check out Let’s Talk Language: An Intro To Real Estate Terms That You Should Be Educated On to get yourself educated on terms such as refinance! Anyway, I bought my property in November 2019, one month before the first COVID-19 outbreak in Wuhan and four months before the United States practically shut down due to COVID-19. Talk about lucky timing right? My tenants moved in on February 1st, talk about even better timing! The global pandemic has affected everything and that even includes mortgage rates. Throughout this pandemic, real estate has surprisingly…picked up! Mainly because mortgage rates have dropped to just under 3%! That’s huge in real estate! I may be too young to remember, but I remember people talking of 4%, 5%, 7% mortgage rates, that’s insane! I had a 3.99% mortgage rate locked in when I bought my property and 6 months after, I began searching to refinance my property. I mean, it’s free to look and inquire, but if the price is right, heck yeah I’ll refinance!
You Can Do That?
Yes, I bought my home in November 2019 and began the refinance process in May 2020, 6 months after purchasing the property. Of course you can do that! Most lenders require you wait 6 months before applying for a loan with them, but there’s no restrictions on using a different lender. They will most likely ask you to wait for 6 months regardless, but anyway, my 6 months were up! The pandemic dropped the federal interest rates to near zero and caused mortgage rates to dip! I went on the hunt for a new loan! With 3.99% interest rate, if I were able to drop the interest rate to 3%, that would save me just over $200 per month!
I reached out to my agent for any referrals for a mortgage consultant, since I most likely wouldn’t have been able to use my original lender from my first deal. My agent referred me to a consultant whom he has been working with the past couple of months on some deals he’s closed out (Will put in their contact information at the below, for your mortgage needs). I reached out to the consultant and we connected very well; he was honest, informative and seemed like his goal was to work in my best interests. I typically shop around for lenders, but after speaking with this consultant and with my agents recommendation (and some consultation with one of my main consultants, my dad!), I decided to go ahead and begin the refinancing process! Matthew, the mortgage consultant, gave me a worse case scenario of 3.25% interest rate, which would turn out to $210 per month savings for me, which was over the target on how much I wanted to save!
The refinance process is just the same as applying for your first mortgage. Give the lender all the necessary documents: 2 Year’s worth of tax returns, pay stubs, W-2’s, drivers license, etc. You will go through the home appraisal process, wait for the loan to be approved by underwriting and then closing! Again, with the global pandemic still here, there have been modifications to the loan process. Here are some of the options that were presented to me for the refinance:
- Exterior Only Appraisal – this option I really appreciated and took advantage of! By doing an exterior only appraisal, the appraiser only assessed the outside portion of the home and land and based the value of the home on that information and similar homes within a mile or two of the area.
- Closing at my property – Normally, loan closings are done at an office or at the title company’s office. Again, the pandemic gave me the option to have the loan closing at my property in the outside with social distancing!
For the appraisal, me and my significant other were not comfortable having someone come inside our unit and our tenants definitely wouldn’t have wanted someone coming in unless it was a maintenance issue. I opted for the exterior only option and it was the best! And to top this all off, my house appreciated in value!!! I bought my home for $450,000, the appraised value of the home was $465,000! That’s a $15,000 increase in 6 months! Now I know, I know, the price will fluctuate, but this appraisal was done before I got the driveway and backyard done too! (Check out the new driveway here: Let’s Talk Improvements: New Driveway Alert!!!) I’ve mentioned in the past that appreciation is important, especially since I plan to open a line of credit on the property, where an appraisal is also done again!
With the appraisal done, we hit a bit of an issue before the loan was approved. MY PROPERTY WAS ADDED TO THE FLOOD ZONE IN OUR AREA!!!! I made a point of emphasis when I was looking for a home that I did not want to deal with any homes in a flood zone. Just my luck right..Matthew gives me a call for a heads up that my home was added to the town’s flood zone by FEMA on April 3rd, 2020. APRIL 3RD COME ON NOW!! To make matters worse, my home is on top of a an elevated hill!!! Anyway, I wouldn’t have gotten approved for the loan unless I purchase sigh….flood insurance. I was livid. I won’t lie I was really pissed LOL. I first went to my State Farm agent and their prices were ridiculous! I got quoted at over $237 per month! That wipes out all my savings! Apparently, my property was added to a “Specialized High Risk” area by FEMA, I will definitely be sending some complaints because our block hasn’t come close to flooding and it’s rained pretty bad the last couple of weeks! I did a lot of research to try to get the price down and asked Matthew if I could use private flood insurance, which I learned was way cheaper. I got a yes and found a company that quoted me at $74 per month!! I took that without hesitation! That’s more than $150 per month less than I was willing to bite the bullet for. Phew..I did dodge a big bullet there. Anyway, with the exception of the surprise flood zone news, the loan process went very smoothly! The closing took place in my backyard on my tenants patio set, thanks tenants!
My significant other took a picture of me (in a white tee of course) signing documents with the title officer. The screen on the window made it hard for her to get a good picture, but you get the point!
Let’s dig into the numbers!
My original mortgage payment was $2880.45 per month @ 3.99%. Me and my dad have been throwing extra money at the principal balance of the original mortgage, so I applied for a lower loan amount. Matthew was able to lock me in at a 3.00% interest rate if I paid an extra 1% up front, I definitely did! Here’s the next best thing: I asked if all the upfront and closing costs can be added to my loan amount and the request was granted. This means, I did not need to pay anything at closing! So let’s take a look at the old payments vs the new:
|Old Payment||New Payment|
|Home Owners Insurance||$83.33||$83.33|
I am now paying a monthly of $2,454.00 per month, a $426.45 decrease from my old monthly payment, wow!!! This is huge for me and my significant other because we will be decreasing our monthly “rent” payments to $1,200 from $1,400 per month! The extra payments that me and my dad made definitely took a huge chunk out of the mortgage payment and will definitely help down the road. Refinancing made sense for us because we were locked in a higher interest rate and we already made those principal payments on the loan. The flood zone addition did throw me off and almost blew up all my plans, but when there’s a will, there’s a way!
This investment has gotten even better and we are just getting started! With our tenants currently paying $1,950 per month and me and my significant other paying $12,00 per month, here is our monthly cash flow looks like (before and after)
|Income/Expenses||Old Monthly Cash Flow||New Monthly Cash Flow|
|Unit #1 Rent||$1,950.00||$1,950|
|Unit #2 Rent||$1,400||$1,200|
|Water (Monthly Average)||-$31||-$31|
My real estate business is now looking at a cash flow increase of $226.45 per month after refinancing and reducing the rental income for Unit #2 (me and my significant other’s unit). Talk about savings! This is the power of real estate at work! If we decide to move into Unit #1 and rent out Unit #2, we will just end up paying a significantly decreased price for Unit #1! We will still have low rent payments, but will be gaining the bigger unit and basement! Refinancing is all apart of the real estate game and it is important to stay active and to stay on top of the current conditions of the real estate market, you never know when an opportunity will appear. You have to be prepared to strike! If the money and calculations make sense, go for it! If it doesn’t your opportunity hasn’t come yet, stay patient. Now with the refinance done, we we will continue to keep paying our lower rent prices until the next move, whether it be downstairs to Unit #1 or…property #2!