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How To Save $100/Month On Your Mortgage Payment

Why pay fees and interest that you don’t need to! Most people don’t truly understand all of the different fees making up their monthly mortgage payment. Below I have outlined how I plan to save $97 per month by spending $150. I will take a month and a half payback any day!

When I purchased my first ever home, I decided to use a FHA loan with a 3.5% down payment. One big benefit of getting a FHA loan is the low down payment needed to purchase the home. The downside of purchasing a home with a FHA loan becomes having to pay Private Mortgage Interest (PMI).

What is Private Mortgage Interest? PMI is an additional cost the lender charges you in case of a default. This helps to protect the lender as they feel you are more likely to default on your loan if you only put 3.5% down. So what did this mean for me on a loan of $280k? An additional $97 per month in PMI cost. Ouch…that money could definitely be doing something more than being gone forever.

How can you get rid of PMI? After calling my lender, there were two options provided to get rid of PMI.

  1. Option 1: required 20% equity in the home. To have 20% equity built up in the home, I would need to have $58,400 paid principal. Yeah, no, 🙂 I am not even close to that.
  2. Option 2: having a minimum of 75% or lower Loan To Value (LTV) in my property. In simpler terms, this means my Loan Amount divided by the Value of the home must be less than 75%. I decided to go with option 2, and here is why.

Based off my lenders website, they estimate I have built up $90k in equity. With that, my loan amount is $263,183. I purchased my house for $292,000; therefore, if I have an estimated $90k in equity, this should mean my home is worth $262,183 (current principal owed) + $90,000 (current equity estimate) = $353,000.

The only issue now is the fact I purchased the home at $292k and the current estimated equity build up is fictitious (for now). What can I do to “realize” the equity? The only way to make the equity “real” is by getting my home re-appraised and for the appraiser to come back with a home estimate of $353,000 or greater.

Action Steps Taken:

Here are the actions I took to make this happen:

  1. Called my lender to have them schedule an appraiser to come out to get my home re-appraised
  2. Put together a one pager printout for the appraiser, so once they get to my home they understand the exact price I am trying to get the home appraised for. THIS IS HUGE! From people I have spoken to, if you go in with factual data behind properties sold in your area that are similar to your property AND you give them the number you are looking to get to, the odds of your home being appraised for that amount exponentially increases.

3. Now it is time to print out this one pager and have the appraiser to come by the house to hopefully have everything re-appraised to the $350,910 needed.

I should know back in a week from today (6/29/19) whether I received the appraisal value I was looking for. Ultimately, there are two outcomes that can happen:

  1. Scenario 1: I receive an appraisal value of $350,910 or greater and my lender will automatically remove the PMI. This will immediately save me $97 per month at a low cost of $150 to have my home appraised
  2. Scenario 2: The appraiser comes back with an appraisal amount of less than $350,910. In this scenario, I have two options. Let’s say the appraiser comes back and values my home at $348,910. Option 1, I can do nothing and wait for a few additional mortgage payments until I have paid $2k more towards principal. Based off my principal paydown in each payment, this would take 5 months and I would have lost out on $485 worth of savings. Option 2, I can make a one-time payment towards the principal to get to the exact equity needed. In this scenario I would be required to make a principal payment of $2k. At that point I would have the required equity built to get rid of PMI. Now my total cost comes to $2,150. At a savings of $95/month, this would payback in 22 months. Still not bad when you look at good return rates and ROI.

I will post after the appraisal comes back to detail out the course of action taken based off what the appraisal comes back with.

Key Takeaways:

  • FHA loans are great for first time home buyers, but they do come at a cost. That cost is having to pay Private Mortgage Interest. This cost is never recouped.
  • Understand the breakdown of your mortgage payments and any fees or unknown costs your lender doesn’t want to tell you about.
  • If you do have an FHA loan, and your home has appreciated in value since purchase, call your lender to see if there are options to get rid of PMI. You might be surprised how easy this can be if you have the proper equity unrealized.

This article was a lot more detail and requires much more action and understanding of what to do versus past articles. For that reason feel free tor reach out to me in the comments or send me a direct message on IG: @TheYoungRetireeBy33 if there are any questions you have about your current situation. Hope you enjoyed the read!

#Money #Entrepreneur #Investing #Investments #Saving #Business #Finance #Success #Motivation #Refund #RealEstate #PMIRemoval #PMI #SaveMoney #SavingMoney #FHALoan #FHA #Loan

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About TheYoungRetireeBy33 – Part I

I have put off posts to let people know who I am and what I am about for too long now. It is time for my four part series introducing myself and who I am to the reader.

In this post, I am going to talk through how I was brought up as a young-in from 6-14 years old.

I was born and raised in Plano, TX. At the time, the area was very much developed with not a whole lot going on. I grew up with an older brother and was blessed to have two loving parents in the home. Looking back I now realize how fortunate I was to have a great household to come home to with two very loving parents and an older brother who didn’t pick on me too much.

Developing My Competitive Mindset Early On:

As a kid I was in every sport you could possibly imagine. The only sport I never played was football and that was mainly due to my parents not wanting me to end up in the hospital. I will say, being a tall and skinny kid in a football game in Texas would not end all too well (unless maybe I was the punter haha). I was an extremely competitive kid and who always loved competition. Any time I could get outside and do something competitive I would jump at the opportunity. My dad pushed me a lot in athletics and was always the coach of my teams. Looking back I also didn’t realize how much of a blessing I had to have both of my parents at all of my games and practices. It must have been a significant time commitment to them.

Family Environment I Was Raised In:

My family lived in a modest neighborhood directly across the street from a library. My parents both drove 5-10 year old cars that were definitely not the flashiest (not as cool as my 11 year old VW Jetta though haha). We had a comfortable two story 4 bed, 3 bath home with all old appliances and no fancy interior decorations. We didn’t spend any money on material things. Both of my parents worked full time jobs with my dad being a tools salesman and my mom working in database administration. A typical week day would be school followed by my parents taking my brother and I to one of our sporting events. A typical weekend would be my parents driving both my brother and I around going from one sporting event to another. As you can see competition was instilled into me from an early age.

Parents Views On Money:

From my early childhood (till the age of 14), I don’t remember hearing my parents speaking about money a single time. I didn’t find this odd at all. I simply thought every household didn’t talk about money. No discussions on how much my parents made. No discussions on what type of things they were investing in (if anything). And definitely no discussions about money goals to get out of the rat race and become financially independent. This prevented me from having any base understanding of money and investing. I guess that could be a good or bad thing.

The Beginning Of My Mindset Shift:

I was now 14 years old and had moved to a new city in north Dallas a few years earlier. By this point, I had decided to give up all athletic sports besides tennis. I was ranked top 10 in the state in juniors and I now had a decision to make on what high school I would attend. I was in a unique situation where a new high school was going to open up for my freshman year. From an athletic perspective, I was already being recruited by the old high school’s tennis coach. I had to make a critical decision at this stage of my life. I could go to the new high school where I would be with all my friends but have no idea how good the tennis program would be (which would be risky), or I could go to fundamentally sound school where I knew I would get great coaching. After all my goal was to play Division 1 tennis out of high school. I ultimately decided to take a riskier path, attending the new high school, with the main driver being all my friends being there.

This fundamental decision made me have to grow up extremely quick from an athletic perspective. I went to a brand new high school, and in my first year of playing tennis there, I was the number one player on the team. I was not only young for my grade (14 when most of my friends were well into being 15), I was also an extremely timid and shy kid. I was a scrawny 5′ 10″, 115 lb. 14 year old freshman playing 17-18 year old seniors who were twice my size. It was time for me to make a critical decision in my life. I could be intimidated by the size of my opponent, or I could step up to the challenge and step out of my comfort zone. I decided the later. My freshman year I was first team all district, made the regional tournament and only lost 5 matches all year. I am extremely grateful for not only the decision I made at that time to choose the school I did, but also the decision I made to not be intimidated by my opponent standing across the net.

Looking back, here are the main takeaways I had from the early times of my life:

  • Money: This was never something my parents discussed. I wish my parents would have talked more about money in the household growing up, but I am honestly glad they didn’t. I believe the discussion of money is valuable if and only if you know how to effectively get certain points across to your kids.
  • Mindset: Competition was driven into me from an early age, mainly from athletics. I cannot be more grateful from being as involved with athletics as I was. The main things I took away from athletics were the drive I now have and the work ethic athletics instilled in me.
  • Mission: In life you can’t be afraid of the unknown and taking risks. The decision of going to the new high school was a fundamental decision I made early on in my life I couldn’t be more grateful for. This decision helped to shape my mission of going against the status quo and doing things that may seem difficult at first but are the right decision for the long term goal.
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Good Debt vs Bad Debt

The oh so classic debate about debt! Most individuals hear the word debt and immediately associate the word with a negative feeling. The real question is, is all debt bad debt?

It is extremely important to understand the fundamental differences between good debt and bad debt.

What is bad debt?

Are certain kinds of debt bad such as Student Loans, High Interest Credit Cards, Personal Loans For Discretionary Purchases, Car Loans? Absolutely YES!

Why are these bad debts?

These types of debt are only taking more and more money out of your pocket versus putting money into your pocket! Here is a breakdown of my thoughts on each one of these types of bad debt:

  1. Student Loans: Does it make sense to go into debt to get a college degree? Eh, maybe. I would argue in the day and age we live in that you don’t need to have a degree to make something of your life. It is the thing that makes people feel safe though so I am sure many would argue against this.
  2. High Interest Credit Cards: As I have posted before, don’t go into debt with high interest credit cards. If you can’t pay off your credit cards in full every month while saving a significant amount of your take-home pay, don’t use them!
  3. Personal Loans For Discretionary Purchases: C’mon man! Are you serious!? Get out of here with that.
  4. Car Loans: Why would you ever buy something new or above your means just to try and impress others? I had a conversation with one of my tenants over the weekend after giving him the book Rich Dad, Poor Dad to read. I was talking with him about mindset and why it is important to invest and create different streams of income. He saw me pull up to the golf course in a 2008 Volkswagen Jetta. He inquired about how much I made and when I told him his jaw dropped to the floor. Just because I make a lot of money doesn’t mean driving a nice car is important to me. That $30k car is $2,400 a year before compound interest I would be losing out on.

Now the logical question would be, so what does good debt look like?

Types of good debt:

  1. Travel Rewards Credit Cards you can pay off in full every month. The key here is paying them off every month. If you can’t pay them off in full every month, don’t do it!
  2. Leveraging Other People’s Money (OPM) to invest in assets that put money into your pocket. An example of this I am currently using is my mortgage. With the house hacking strategy I am doing, I am earning $2,600 per month in rent. On a mortgage payment of $1,777, that is $833 I am putting back into my pocket each month while paying down my mortgage principal.

I hope you are now able to better understand the differences between good debt and bad debt. This was the single greatest mindset shift I had allowing me to drastically reduce the amount of time it will take me to be financially free and out of the rat race!