Minimalist in DC

The Quest for Less "Stuff" & More Time

Tag: housing

Mortgage Refinance Lessons Learned

Mortgage Refinance Lessons Learned

Home, Sweet Home

Housing in and around DC is expensive, but we love our house and our neighborhood. I wouldn’t mind if it were smaller (in fact, if my spouse would let me, I’d begin construction on a tiny house in Montana tomorrow), but the fact remains that I couldn’t think of a better place to raise our family right now.

We bought our house nearly three years ago, without anywhere near 20% down, so we’ve been paying Private Mortgage Insurance (PMI) — $8250 so far, to be exact. It’s an incredible waste of money.

So a few months ago, I started researching how to get rid of PMI and we finally decided to refinance. I naively thought that it would be a breeze because we already own the house, so we wouldn’t have to wait for a specific closing date, right? Sign the papers and bam we’ve got a new mortgage! Wrong.

We chose PNC Mortgage because we already have a checking account at PNC and the rates and fees were decently competitive. We applied officially on January 8, but didn’t close until March 9. First, the paperwork came, but was laden with errors. (For example, Nathan’s social security number and birthday were wrong. Apparently the bank wasn’t worried that I’d married a 63-year-old Park Ranger.) It took a month and a half to get that changed. Later our house was listed as being in Georgia. The change to put us in the right state (Virginia) was not made officially until the closing day. Day after day something new would go wrong. The loan processor would disappear for extended “sick leave” or “vacation” or the bank would wait until the last minute to check our employment status or file for the new title. As the closing date drew near, we had to sit through our loan officer and loan processor yelling at each other via email. It was the most unprofessional process I’ve ever been through. While we waited, the fees rose a bit and our target closing date of Feb 26 came and went without the bank proactively keeping us in the loop. I had to pay another month of our expensive mortgage and squeeze in a closing date between travel and a major quarterly meeting. The rates had since gone up, so we were stuck with PNC’s locked-in rate unless we wanted to pay a lot more over the life of the loan to switch banks.

Why am I telling you all of this?

Mortgage Refinance Lessons Learned

  1. I wouldn’t use PNC Mortgage again. Ask friends for referrals (which I did) and be patient enough (which I was not) to use one of them instead of someone you find on your own.
  2. Set expectations low and be patient. Refinancing is a major pain and takes a long time. Be prepared for that when you start.
  3. Refinance at a time when you’re not busy. Just like buying a house, it takes a lot of back and forth to refinance. Do it when you’re not busy and at a time when you won’t be out of town around closing day.
  4. Save what you save. It was easy to start thinking about where I’d re-appropriate the money saved, but instead of finding a creative way to spend our newfound cash, I’m saving it. It will likely go into a major home maintenance project someday, but for now, it’s just earning me interest in the bank.
  5. It was worth it. We saved nearly $400 a month after refinancing and many thousands of dollars over the life of the loan. There are many calculators like this one and this one that can help you decide whether to refinance and will show you how long you need to stay in your home to start making a return on investment.

Do you have any refinancing advice? Share it!

Remove Private Mortgage Insurance

New House

When we bought our house two years ago, the rates were low, house prices in the DC area were rising and we had a growing family.

Housing in DC is notoriously expensive. While house-hunting, we searched for a long time, through many a terrible neighborhood to find the perfect single family home in the low $400s. This is far more than I ever expected to pay for housing. Yet, it’s amazing how quickly your relative sense of how much something should cost is warped after you move to the DC area.

I’m very aware that most minimalists would urge me to downsize, but we absolutely LOVE our house, neighbors, and school system. Plus, in 2.5 years, the prices have risen so much that if we wanted to downsize, we’d have to move farther away and probably pay more. We’ll be staying put.

Two years ago, we took a calculated risk. We decided to put less than 20% down to secure a place to live in a growing market with low interest rates. I believe this strategy will pay off, but we’re more than ready to get rid of the Private Mortgage Insurance (PMI) on our home.

PMI is the extra money you pay to cover the risk that you default on your home loan if you don’t put down 20%. It doesn’t benefit you in any way and you’ll never see a return on investment. The only thing it allows you to do is buy a house with less up-front money.

In general, you can remove private mortgage insurance from your home loan once you owe less than 80% of the lower value between your house’s purchase price and what it appraises at now. This means that we would have to pay another $45K against the original purchase price before we’re able to remove the PMI, even though our house is worth far more than the original price today. Without paying extra principle each month, that would take us another five years and over $16,000 in PMI alone.

Our other option is to refinance the loan. A new appraisal is done and if the house comes in at a high enough value, the new loan won’t carry PMI. Up-front costs are around $2000 and the rates are about the same (actually slightly lower) as our original home loan. The risk is that the appraisal won’t quite be high enough and we still have to carry PMI. Even if that happens, the time horizon we’ll have to pay PMI with a new loan is much shorter.

I’m not quite sure whether to refinance now while the rates are low and risk continual PMI, or wait until our house is definitely worth enough to remove the PMI and risk a higher interest rate.

What would you do? Would you refinance now, even if it meant possibly paying PMI for a little while longer, or would you wait to refinance (not knowing what the future rates will be) until you can remove the PMI completely?

DC is the Most Expensive Place to Live

According to an article in the Washington Post yesterday, the Bureau of Labor Statistics did a study that shows that “on average – Washingtonians spend more on housing and related expenses (utilities, furnishings, and equipment) than New Yorkers and San Franciscans.”  At least we did in 2011-2012.

2011-2012 Housing Expenses by City

2011-2012 Housing Expenses by City Source: US Bureau of Labor Statistics / Washington Post

I find this hard to believe when tiny apartments in San Francisco are going for an average of $3,120, but this seems to be a huge increase over the last two years.  DC may no longer be on top.  However, it is still true that the DC area is way up there when it comes to expenses.

Which leads me to believe that if you can be a minimalist and reduce expenses here, anyone can.

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