What you are about to read might be considered a “long read”. However, if we went out to lunch to talk about this stuff it might take more of your time. Since we can’t go out to lunch right now, I’ll simply recommend you read along. If you understand what I’m saying and act on what I’m saying in your own way…you will win. Who doesn’t like to win?
Here’s the honest truth.
I am not well suited for work. There I’ve said it. To the people who know me well this is not a big surprise.
When we were building our new house Carol and I and the builder were in the garage making house plans. Carol suggested our garage was the perfect spot for a workbench. Workbench? Why in the world would I need a workbench? I do have a toolbox. It’s got one item in it. A credit card! I was lucky I wasn’t traveling that day. Had I been out of town there would be a workbench in our garage right now. There isn’t!
Soft hands!
Just the other night Carol was saying good night to me. I was planning to stay up just a little bit later to watch TV. She caressed my hand and bent over to give me a goodnight kiss. At that point, she shrieked. “Soft hands! You don’t have any calluses. Don’t you do any work?” She knew the answer to that question.
I have “people” for chores.
It is true that I don’t know how to turn off the water at our house. I don’t know when the trash man comes to collect our garbage. I don’t know how the smoke detector batteries get replaced in our 12-foot ceilings.
Just a couple of nights ago Carol heard one of our smoke detectors beeping at 3 o’clock in the morning. I think I heard the sound as well. I simply turned over and went back to sleep. The beeping bugged Carol so much that she had to get up, go grab a ladder from the garage, stand on the top step of the ladder and replace the battery…at three o’clock in the morning. Yep. I slept through it all.
Has Carol given up?
Carol likes work. She really does. I don’t like work. I like playing. I can play forever and never get tired. I sure am lucky that Carol is there to do every little household chore that exists and even the ones that she likes to dream up. I am more than thankful for that. I am not interested in doing any of the chores she ever suggests. None. After more than 49 years of marriage, I think she has given up on me in the “chores arena”.
These 20 years went by fast!
I am in my 20th year of retirement. Some people retire and immediately get another job. In almost every case that new job pays a lot less than the original job they left in the first place. Honestly, I don’t consider that retiring. I consider that changing jobs.
Time to get down to business!
Now, let’s get down to the business at hand. Who is the perfect candidate for what I am about to cover?
People who own a house
People with good credit
People who would like to improve their cash flow
People who want to leave a little something for the kids
People who want to get the most from their money
People who want to build up their home equity
Do you relate to any or all of the above? Great! I figured you would.
How to get more money after you retire.
Let’s say someone retires. Then somewhere along the line, they decide they need more money or they could use more money. The retiree has two choices in a situation like this. One option is they can find a job and go to work and earn some money.
The opposite of going to work to get more money is to find a way to reduce expenses in whatever creative means they can come up with. Here’s an example. Let’s say this person’s retirement income is $100 a month. Let’s say their expenses each month are also $100.
On the one hand, this story’s hero/heroine can go to work every day and earn $20 a month so that his/her (referred to as “her” from this point forward) total income is now $120. By working this person’s income in $120 and expenses are just $100. She’s twenty dollars to the good each month. Great! Really?
I don’t do it that way. I take the opposite approach. I figure if I can save $20 each month my expenses are now reduced to $80/month. My income is $100/month. I’m $20 ahead…and I didn’t have to go to work!
There are some drawbacks to traditional work.
The person who goes back to work has to show up on a frequent basis. They have to adhere to someone else’s schedule. They have to listen to their customer (everyone working has a “customer”) and do what their customer wants. I don’t want to do any of that. Of course, it is much easier to say this when you have a secure retirement!
Working smart is good…but not for a long time.
I told you I don’t like to work. Permit me to elaborate. Better said is I don’t like to work hard. If I’m going to work, I’m only going to work if I can work smart. Even when I work smart, I don’t want to work smart for very long. I was put on this earth to play.
I can concentrate on the task at hand for a few days. When I do that, I’ll be working to create a system that runs itself so I don’t have to think about it very often in the future. The system will generate the savings that come with working smart. It takes me a lot less time to be smart than to go to work every day or even every other day or even two times a week. It don’t take long to be smart.
I will not deviate from this money management theory.
Let me share my personal theory on managing money. I want to buy good stuff cheap. I do not want to buy cheap stuff cheap. I’d rather get a good deal on a Marriott Hotel and pay $80/night than get a good deal on a Motel 6 and pay $50/night. I don’t want cheap stuff. I don’t want cheap stuff at a good price. I want good stuff at a good price. Period.
I should say most people just don’t get this. They think if they buy the nice stuff they will go broke. When done properly you can buy all the nice stuff you want, enjoy it, and still have plenty of money in the bank. How many people do you know who died broke? How many people who you know died with quite a bit of money? Get it?
Spending like a drunken sailor.
I’m going to continue buying expensive houses and cars and going on as many trips as I can convince my wife to take. My plan has always been to spend like a drunken sailor! How many retirement stories do you read where that strategy is advocated?
I’ll do my very best to get a good deal on the purchase price of anything I buy. Then I will pay for my goods and services as slowly as I am allowed. The lower the interest rate and the longer the term for my borrowing the better. My money will be sitting in an investment account for as long as possible.
Some examples of buying good stuff cheap.
In the past, I told you how our solar panels are saving us $6,000 in cash every year. The system is now paid for. We don’t have any electrical expenses. The more electricity rates rise the more savings solar creates. The solar system does its thing. I don’t have to do anything. If we had to pay $6,000 in electrical expense, I would have to draw out of my taxable IRA maybe $10,000/year to cover that expense and cover taxes. Folks, that’s what working smart and reducing expenses looks like. But…we are not here to talk about solar panels. We’ve been there and done that.
I’ve also told you in the past about the best way to buy cars. If you save a few thousand dollars buying a new car you create the pleasure each morning of enjoying the car of your choice at the very best price possible. Of course, you can drive a beater. Are you saving money? One of the sayings I really like is “the poor man pays the most”. I don’t have any interest in driving beaters. Again, we’re not here to talk about buying new cars.
Maybe you didn’t learn this growing up?
I’ve told you in the past how you can save money by first having a mortgage and secondly having an interest-only mortgage and thirdly getting the very best mortgage rate that is available. I have tried to explain how “building equity” is absolutely a poor choice. Everyone should have their money working for them in a series of broadly diversified assets managed at a low cost…for as long as possible.
What have you done up to now?
Now by a show of hands, I want to know how many of you have acted on solar panels, the new car buying process, and/or interest-only home mortgages? For those of you who are raising your hands, I offer my most heartfelt congratulations. As Charlie Sheen used to say, “you are winning”…or something like that.
At some point, it doesn’t do any good to buy more solar panels. At some point, you can only use so many new cars. There might also come a time where you cannot get any better interest rate on your current mortgage but maybe that point hasn’t been reached yet.
From this point, you’ll need to pay attention.
Now we are getting to the meat of this particular sandwich. If you haven’t been paying close attention you might want to change that approach. Let’s get started!
About a year ago I refinanced our mortgage from one interest-only loan to another 10-year interest-only loan with a rate on 2.75%. This was for a super jumbo mortgage.
Please. Don’t do this!
Important! I’d recommend you not try to compare your current loan rate and terms with the rate and terms I got during my last refinance. Why? That would be a little like comparing a folding chair to a taco.
You may have gotten a smoking hot deal on a folding chair. I may have gotten a smoking hot deal on a taco. The fact that you bought a folding chair at Walmart for $3.99 can’t possibly be compared to the fact that I bought a taco at a taco sound for $0.49?
Refinance as often as it makes sense.
In the past ten years, I have refinanced our home loan in 2011, 2012, 2013, 2016, 2020 and now 2021. Each and every time I got the best deal that I possibly could. Each time the loan closed I didn’t think that I would ever be able to beat the rates and terms ever again. Obviously, I had been incorrect in those assumptions so many times.
By the way, I keep saying “I” refinanced. Of course, Carol has her name on the loan just like I do. However, I won’t tell you that “we” changed the batteries in the smoke alarm because I was not a material part of that transaction. That’s the situation in reverse when we refinance.
Trying to compare a folding chair with a taco?
You haven’t forgotten that it’s nearly impossible to compare a folding chair with a taco, have you? I’m now going to share with you what I’ve just done. You are not looking to “beat me”. You are not looking to say “I could never do what Randy just did”. What ARE you looking for? You are looking to see how you can apply the principles I explain to your own situation. If you can do that you will say a lot of money.
Let’s examine a few financial details. This is important.
Interest-only loans.
I suspect that few of you have ever had an interest-only home loan. Of course, this is the type of loan where you pay only the interest and do not reduce the principal on your loan balance. How many of you just had the hair on the back of your neck stand up when you heard you wouldn’t be reducing your home loan principle with an interest-only loan? Be honest. By a show of hands how many? That’s a lot of hands! Thanks for being honest.
Building equity and leaving money for the kids.
The two most common objections to interest-only loans are 1) I want to build equity in my home and 2) I want to leave some money for the kids. Those are noble objectives but they are just plain wrong. Of course, I don’t want to offend anyone. But how many friends and family in your life are willing to tell you when you are wrong?
Randy, can you elaborate?
Yes…I can. Let’s say you have a $1,000 mortgage payment. Eight hundred dollars of that $1,000 payment goes to reduce principle and the remaining $200 is interest on the loan. At the end of one year, you will have increased your home equity by $9,600 ($800 x 12) right? Good, right? No NOT good.
“Building equity” by paying down principle comes from somewhere!
Where did the $800 in principle reduction each month come from to pay your mortgage? It came from the money you could have been investing. I use a rate of return of 8.6% as the “opportunity cost” of moving money from an investment into anything other than investments. Why 8.6%? Because I’ve earned an annualized average return on my investments of that amount after 19 years of managing my own broadly diversified, low-cost group of mainly index mutual funds. Do you think 8.6% is too high for this example? No problem. Use any rate you want.
You don’t suck.
I know that everyone reading my stuff is pretty smart. You don’t suck. You know that if you took that $800 every month and invested it, at whatever rate of return, it would be worth a heck of a lot more after one year or five years or ten years than moving that $800 a month into home equity. That isn’t for just one micro second open to debate. Money moved from wherever into home equity doesn’t earn anything!
Honestly…I just want to scream!
I want to scream…DON’T DO IT…every time I think of someone taking money from their investment accounts to pay the monthly mortgage. Don’t have a mortgage? Don’t think you are in the clear. Folks with no mortgages, in terms of having their money work for them, are in even worse shape that people who have a monthly mortgage payment!
This is for the folks who want to leave some money to the kids.
Now for the folks who want to leave a little bit of money for Johnny and Sally when they die. I just can’t get this mental image out of my mind.
Johnny and Sally are at the funeral home. They approach your casket and Johnny says to Sally, “Dad/mom always did without so they could leave us just a little bit of money.” Then Sally wails, “But they kept taking money out of their investments and putting it into home equity. They could have left us XXX and because of their poor planning we’re only going to get X. 3X is so much more than 1X.” More wailing.
Too morbid? Too realistic? Too true? At least you get some idea what goes through my mind at times!
Let’s move on to something a bit more positive.
I told you I like to work smart. I like to develop systems that keep on working hard every day without any attention from me.
This is a big secret of mine.
I’m going to let you in on a little secret. I don’t like to share this any more than I really have to. What’s the secret?
I’m not really that smart. If you ever worked with me, you probably came away from our meeting thinking, “Randy is not really that smart”. So, if we can all agree that I’m not that smart how can I generate all of these savings programs on quality products? It’s really rather simple.
My secret to success.
My secret to success is I surround myself with smart people. I’ve known a lot of smart people in my time. Most of the time they didn’t’ realize exactly how smart they were. But I knew. I knew that I didn’t want to work so I HAD to find smart folks to hitch my wagon to. I would take all of their good ideas and massage them until they could create a good idea for what I was trying to do. Remember this. You don’t have to be smart if you have the resources of smart people.
Sometimes I don’t have to look far to find smart people.
Our son J.J. is a very astute financial planner. I often get ideas from him that I’m going to want to use in my own financial life. Frequently he will be able to give me some very strong financial contacts from his own world. Sometimes he will say that I’ve given him some good ideas. I think he’s just trying to be nice to the old man.
Shall we look at some numbers?
In 2020 (12 months ago) we refinanced our home loan in the amount of $2.553 million at an interest rate of 2.75%. There was very little out-of-pocket expense to do this loan. Back in 1980, we had a home mortgage rate of 17 1/2%. Could I ever have imagined a rate of 2.75%? Not in my wildest financial dreams.
2020 was a good deal; 2021 would yield a smokin’ hot deal.
In a moment I’m going to tell you how much our new loan will save us compared to the loan we got just a year ago. It’s big money.
I told you we have refinanced a handful of times since 2010. Why would I be interested in doing such a thing? Each of those refinance actions saved me $50,000-$100,000 in the first ten years of the loan compared to the loan I had in 2010.
Some folks who owned a home in 2010 still live in that home today. Some of those folks still have the same home loan, or no loan, they had in 2010. Why didn’t they refinance as rates continued to decline? Maybe they retired and couldn’t qualify for a new loan. Maybe they just weren’t “paying attention”. Maybe they weren’t and aren’t a take no prisoners don’t leave a dime on the table kind of guy like me.
What have my refinance savings been in the last decade?
How much money have I saved by refinancing our loan so many times in the past 10 years or so? Let’s take the average of those savings numbers, $75,000. In 2011 that refi loan created a $75,000 savings against the 2010 loan. Then in 2012 that refinance created another $75,000 in savings compared to the 2011 loan and on and on. That’s big money after a while, isn’t it?
You might be able to discern from the above that I have systems in place that can generate tens of thousands of dollars in savings every year and hundreds of thousands of dollars in savings in a single decade. I don’t know about you but to me, that’s actually real money.
It’s important to point something out right now. What I am telling you is a fact. There are no opinions here. These savings and strategies are facts.
Maybe the most important, and true, adage that I have ever heard goes like this. People don’t care about what they see, read or hear. They care about what they BELIEVE to be true! I feel so sad when I think how often this is true. In today’s world, so many people simply believe any alternative point of view is “fake news” so they can never change their minds or improve their information sources.
I didn’t really have much interest in refinancing this year.
When J.J. told me a few weeks ago he was working on a new loan for his property I didn’t show much interest. Remember, I don’t like to work. Refinancing a home loan is a little bit of work. You have to fill out a loan application and a bunch of other mental sapping stuff. Did I really want to save well over $100,000 so badly that I wanted to send about 25 pdf documents to the bank?
I absolutely loved my current loan created in mid-2020. The bank had loaned me more than $2.5 million dollars. I hadn’t worked in twenty years. Why would they even consider doing that?
They gave me a mind-blowing rate of 2.75% on a super jumbo loan. They gave me an interest-only loan so I didn’t have to take any money out of my investments to drop into the financial wasteland of home equity. I loved that loan!
I was voting for sitting on my butt and doing nothing.
When I first heard J.J.’s story about getting a super low rate on his new loan I wasn’t impressed. Being a little bit lazy and not all that sharp I thought it might be nice just to sit back on the loan I had and enjoy myself. Did I really want to go through the “hassle” of refinancing my mortgage?
Who would give us a better deal?
J.J. had already checked with our current lender. The rates they had now weren’t any better than the rates they gave us for our refinance late year. No help there.
Then J.J. told me he had a good contact with Bank of America. He gave me the fellow’s phone number. I remember giving him a call from the parking lot of a Culver’s. In a quick five minutes, the BofA guy told me he could never get me qualified for a loan.
Montgomery Ward…really?
That conversation sort of reminded me of when Carol and I were first married. We were taking a shortcut through a Montgomery Ward store in a shopping mall. A guy stopped us and badgered us into getting a Monkey Wards credit card. We really didn’t want one. We filled out the application. Then they rejected us! We never spent another penny in a Montgomery Ward store. Apparently, a lot of other people didn’t either. Wards went out of business in 2001.
My next attempt at tagging onto J.J.’s financial coattails was to contact Quicken Loans. Did you know Quicken Loans was officially renamed Rocket Mortgage on July 31, 2021? The guy at Quicken said he would take my information. He would have to submit things as an “exception” and he didn’t think I would be approved.
After all of the above, I was not in a positive frame of mind regarding this refi opportunity. I was constantly being reminded how I didn’t like rejection and I didn’t like work.
Charles Schwab to the rescue!
A week or two went by. J.J. was cruising along on the different elements of his refinance and I wasn’t getting anywhere. J.J. recommended I give his Charles Schwab guy a call. Charles Schwab was partnering with Quicken Loans/Rocket Mortgage for these deals.
The Charles Schwab guy could not have been more positive. Of course, he was the “marketing” part of this deal. He was paid to be positive. He recommended I call Quicken Loans again. I told him I would only do that if he gave me a Quicken Loans contact who was a little more positive than my first encounter. He did just that.
Beginning to make some progress.
Soon we were “clicking”. Quicken Loans could offer me a 3% interest rate for my refinance. But wait! I already had a 2.75% interest rate. Why would a 3% rate be of interest? Read on grasshopper. Maybe starting at 3% might work. Maybe 3% in this example would be better.
The rich get richer?
Many of the big banks offer special loans to people who can bring “relationship” money to the party. Relationship money? What’s that?
If I invested just a little bit of money with Schwab, they could reduce my 3% rate by a quarter-point. Now we were moving in the right direction! But I needed to beat a rate of 2.75% for things to work for me.
Schwab also had a program where if I moved a really huge amount of money (most of our assets are with Vanguard) over to them they would reduce my 3% Quicken Loans rate by a half point. Now we were down to 2.5%.
A shitload amount of money?
But wait. There’s more. If I could somehow move a real shitload amount of money over to Schwab, they could get my rate down to 2.25%! Holy Smokes! If I could get a loan at 2.25% it would reduce our monthly mortgage payment by more than $1,000 per month. Now we were talking.
I might point out that I have loved having my retirement funds invested in Vanguard mutual funds. I didn’t much like the idea of moving my money out of Vanguard and into accounts at Schwab. However, I wouldn’t “really” be doing that. I could move my Vanguard funds “in-kind” from Vanguard to Charles Schwab. My money would still be invested in those very same Vanguard mutual funds. Charles Schwab would even waive all transaction fees when I bought or sold anything from those funds!
Doesn’t everyone like getting a call from a friend?
About that time, I went on the road for one of my racing trips. Sometimes I will drive 400-600 miles in a day. It’s always nice to have someone to talk to during these drives.
That being the case I went online. I filled out a couple of generic mortgage applications. Maybe some random mortgage company could beat the deal at Schwab/Quicken? If you ever want a lot of immediate friends, I recommend this approach.
Apparently, the folks who collected my name and phone number gave that info to every mortgage broker in the country. I must have talked to 25-50 brokers in the space of two days. Those conversations sure made the 600-mile daily drives go by quickly!
Could any of these people beat the Schwab/Quicken Loans rate of 2.25% on a 10-year super jumbo interest-only loan? The short answer is no. But I never would have known that if I had not fielded nearly 50 phones calls as I sped down our nation’s highways. These brokers told me they could not touch the Schwab/Quicken Loans offer. Quite a few told me I had a smokin’ hot deal.
A good rate but what about “costs”?
Ultimately Charles Schwab/Quicken Loans was willing to give me a 2.25% interest rate on a 10-year interest-only loan. Of course, that was assuming our home “appraised”. We would need to get two appraisals.
What about those pesky refinance costs like the appraisals and title insurance and all of that other rigmarole? I was told that was going to cost well over $10,000. Paying ten large to get a great rate is not necessarily a bad deal. If the savings wipe out the costs of closing in a reasonable amount of time that works.
Negotiating is just a conversation with a major point in mind.
I’ve had a lot of formal training in negotiating. I have taken my “sign” to hundreds of sporting events and concerts. I can negotiate. I live by the creed that everything is negotiable. Whether or not the negotiation is easy is another thing.
No.
I told the Schwab and Quicken Loans folks that I really appreciated their desire to give me such a good loan. I also told them I did not want to pay ANY closing costs. They believed me. The Quicken Loans guy put a pencil to the project. He said he could get the costs reduced from $10,000 to just $5,700. I told them that was a good start but I still didn’t want to pay anything in closing costs.
The Charles Schwab guy took it from there. He came up with $6,000 in “bonuses” for transferring funds from Vanguard to Schwab to wipe out all of the closing costs and provide an additional three hundred bucks for good measure. Folks, I can’t make stuff like this up! I would have a true no-cost loan.
From good to fantastic.
I came into this refinance challenge with a 2.75% interest rate on a 10-year interest-only loan with a mortgage balance of $2.553 million with nine years remaining on the term. That generated a monthly payment of $5,851.
Now with a 2.25% interest rate on a $2.553 million loan the mortgage payment would drop to $4,787. That was a monthly savings of $1,064. This would create a yearly savings of $12,770. The new loan would provide a 10-year savings of $127,695.
How much in extra net worth would I have if I invested our monthly savings of $1,064 at 8.6% for 10 years? Did you say $197,708? You are correct. Folks, that’s how you “leave some money for the kids”!
So, what’s the downside?
Before I go much further, I will point out the downside of a 10-year interest-only loan or any adjustable-rate loan for that matter. When the fixed period is up the interest rate can change. It might go up. Anytime during the term of the loan, you can refinance to a lower rate or lock in the current market rate.
Over the past 20 years or so it has paid off handsomely to the folks who got adjustable-rate loans and refinanced when it made sense. Adjustable-rate loans always offer a lower interest rate than fixed-rate loans. If someone got a fixed-rate loan, even if they refinanced into another fixed-rate loan, they would have big losers over the past 20 years. It’s expensive to get a guaranteed fixed loan rate just like it is expensive to get a guaranteed income program as in an annuity.
We have a plan.
We have a plan if rates are higher in ten years and we have not refinanced during the ten-year term to start the “term clock” all over again.
We will be 82 years old when the term of our 2021 loan expires. We might not want to live in our home at that point. We might have even moved before the 10 years wraps up.
However, if we are living in our home in 2031 and rates have risen and our loan will adjust to a higher interest rate, we can do the following.
We can pay off enough of the loan’s balance to keep the payment the same. We can pay off the entire loan. We can simply pay the higher monthly payment based upon current interest rates in 2031. Ten years is a long time from now especially when you’re 72. Like most things in life, we’ll figure it out.
Good stuff does not fall from the sky.
That’s right. Good stuff like this just doesn’t fall out of the sky. There were two important parts of the refinancing process that still needed to be handled.
What the heck was “underwriting”?
The first was “underwriting”. What’s that? The lender has some characters in the loan department that are going to analyze all of your income and expense information and your credit history. Why would they do that? Here’s the situation. The bank wants you to repay the loan. The audacity of these people. The folks in underwriting will do their very best to make a guesstimate on whether or not you can repay the loan or not.
How much is your house worth and why is that important?
Secondly, the house needed to “appraise”. For a loan the size of ours two appraisals would be required. The appraisal is as important as the underwriting process.
Why? The bank wants to make sure that you have enough equity in your home, which is basically the home’s market value minus the home’s mortgage to make sure that you don’t “walk” on the loan.
Just enough is enough.
Yes, I’m always saying you don’t “want to build up home equity…you want to build up your net worth”. Nevertheless, you gotta have some equity to get just about any home loan. You just don’t wanna have any more equity in your home than you have to.
If you have a $500,000 house and a mortgage of $475,000 then your home equity is only $25,000. Some folks, given a downturn in their circumstances, might simply walk away from their $25,000 in home equity.
From our situation during last year’s refinance our home came in with an appraisal of $4.65 million. Subtracting the loan balance of $2,553,000 left us an equity amount of close to $2.1 million. I think the bank was pretty well convinced that we wouldn’t want to walk away from more than $2 million in equity unless some very, very dire circumstances that I can’t even possibly imagine occurred.
What does the appraiser do?
When a home appraiser comes to our home, they’re going to try to assess its overall condition, the size of the house and its location. The big selling point for our home is that we’re only 100 yards from the whitewater of the Pacific Ocean and have a 180° view of the ocean.
The appraiser is going to be looking for “comparables”. These are homes that have sold in our neighborhood during the past year or so. How big is the neighborhood? An appraiser might consider a home as a comparable as much as one mile or more from where our home is located.
How to compare apples and oranges?
All of the homes that would be considered comparables to our home would be custom homes. That means that no two homes are alike. Let’s say a home sold in the last six months that was three blocks from us for $4 million.
The appraiser is going to assign a value to certain home attributes when comparing our home with the one nearby that sold. Maybe we have a three-car garage and they have a two-car garage. Maybe they have four fireplaces and we have two. Each time there’s a difference the appraiser assigns a value to the benefit or disadvantage to our home compared to the comparable sale.
This is not an exact science.
There is a degree of subjectivity to the appraisal process. That being said if our house doesn’t appraise for enough money, we won’t get the loan. The loan we were wanting to get required a 60% loan to value (LTV) appraisal price. Our loan amount was $2.553 million. That meant we needed our home to appraise for a minimum of $4.255 million ($2.553,000/0.6). If we didn’t get an appraisal of at least that much we wouldn’t get the loan.
I like to meet appraisers.
I always want to be home when the appraiser comes to visit. Actually, when we refinanced a year ago, we were in the midst of the Covid pandemic. The appraiser didn’t even come inside the house. She simply did a “drive-by”.
I did make it a point to talk with her on the phone. We were a few months into the pandemic. She told me she thought real estate was going to do very well during the pandemic. I thought she was bonkers with that idea! I told Carol that maybe this home appraiser had “lost it”. How could real estate prices go up when people were getting sick, people were losing their jobs and folks couldn’t even get into a home to check things out to see if they wanted to buy. How has the real estate market done during the pandemic? Over the moon. That home appraiser was 100% on target with her prediction. I was the stupid one!
Always be selling.
My background is in sales. I have been taught to “read” the person I’m trying to sell something to. Essentially in the refinance process, I’m trying to “sell” my home to the appraiser.
You can bet that I’m going to be accentuating the most positive points of our home and trying to gloss over anything that might not be a selling point. Of course, it doesn’t hurt that Carol would be baking chocolate chip cookies and the smells from that would be wafting through the house. Just kidding. Not.
I would be prepared for the appraiser.
Just in case the appraiser isn’t up to speed on all of the comparable sales in our neighborhood over the past 6-12 months I will be prepared to share that information. I will share those past home sales that are likely to boost the appraisal price of our own home.
Here’s some of my special home appraisal sauce.
I will also do something with the appraiser that I learned a few refinances ago. Hopefully toward the end of our get-together I have built up some sort of a rapport with the appraiser. The appraiser wants to put a value on a home that is reasonable. They certainly don’t want to have an appraisal price that is too low. That prevents the buyer from getting the loan. Nobody really wins with that. Of course, they don’t want to appraise the home to high either. That could increase the risk to the bank.
Would it be O.K.?
I will always close our conversation with something along these lines. “Would it be OK if I told you the appraisal price that we’re looking for in order to get this loan? I don’t want to overstep my bounds but I thought you might be interested in the number”. Each time I’ve asked this question I’ve been met with a positive response from the appraiser.
Anyway, if done properly putting a bug in their ear about the price we need can’t hurt. It’s a somewhat delicate situation but I think it’s one that is necessary. I’ll do my best to share that information just before Carol appears dressed in a provocative outfit with the plate of steaming hot chocolate chip cookies and a cold beer for the appraiser to take with them on their ride home! O.K., forget that provocative comment. I was just daydreaming.
817?
Soon information from underwriting and the appraisal process was starting to come back to us. They told us we had a credit score of 817. I asked the Quicken Loans guy if that was good. I only asked that question because I wanted a compliment for the day. I already knew it was a great score. The best the Quicken guy could tell me was that “as far as he knew that score was good enough to get the loan”. That kind of pissed me off but then it was really my fault to go fishing for a compliment in the first place.
The rest of the underwriting confirmed we had the assets and income we needed. Our income consisted of my IRA required minimum distribution (RMD) and our social security income. Nobody ever talks about this but taking SS early can help you get a bigger loan! Soon underwriting confirmed we were in the clear.
Now our financial future was in the hands of two guys I had never met.
Now the entire ball of wax was in the hands of the two appraisers. I was there with a big smile to welcome the first appraiser at the front door. I was dressed in a t-shirt and shorts. That pretty much proves I don’t get dressed up for anybody. I suggested I give him the five-minute tour and he could spend the rest of the time in the house taking pictures and measurements. He liked that idea.
Fraternity brothers for life.
During our conversation, I learned the appraiser had just purchased a Tesla. He loved it. I own a Tesla. Soon it was like we were long-lost fraternity brothers. A fraternity brother will do just about anything for you.
When it was time for the appraiser to leave, I gave him his “parting gift”. No, not the chocolate chip cookies. I gave him something much more valuable to both him and me.
I gave him our home’s measurements and appraisal price from last year’s refi appraisal. Giving him the measurements could save him tons of time. Giving him last year’s appraisal price, attached to the measurements, was just one more bug in the ear.
Helpful or a pain in the ass?
We needed an appraisal of at least $4.25 million. Last year’s appraisal was $4.65 million. How could we go wrong? I know what you might be thinking. “Randy, you sure are one helpful guy!” Thanks.
Appraiser #2.
The second appraiser came two days later. He not only took me up on my offer of the five-minute tour but he asked that I accompany him on the entire tour. Not a problem for me. He was only in the house for 30 minutes. Of course, he left with his measurements and last year’s appraisal price.
Both appraisers were nice guys. They had a job to do. Did I influence them in any way? Probably not. They know a lot more about their job than I do. However, it never hurts to have people like you when you need a favor.
Now…we waited.
From this point, we waited. The underwriting was pretty much finished. The appraisals came through with flying colors. The first at $4.95 million and the second at $5 million.
By the way, the house I grew up in until I was 15 years old has a value on Zillow.com of $46,000 today. Check it out. The address is 411 Doering East Peoria, Illinois.
Where I grew up during my high school years a $30,000 house was for the “rich” people. We never had parties for the kids at my house. Our house might have been worth $10,000-$15,000 at the time. However, I was pretty impressed with the big new $30,000 houses that my friends had.
Dribs and drabs.
We endured a couple more weeks sending in this drib or that drab of information. They wanted to know if our solar panels were purchased (they were) or leased. I’m suspecting we might have had a hard time getting a loan if we had been leasing our solar panels. I’m thinking Quicken Loans might not like to have their mortgage position compromised with a lease commitment to someone else on our property.
Then we were done. We had locked in our interest rate for the next 10 years at 2.25%. Will we ever refinance again during the next ten years? Each time we refinance I think I will never ever be able to beat the terms of the loan I just got. Each time I thought that I’ve been wrong. I hope I’m wrong again.
The bottom line.
Here’s the bottom line. I share all of this for just one reason. If I can motivate just one person to save $5,000 or $50,000 or more by using some of my strategies, I will be repaid many times over.
It’s easy to do absolutely nothing.
It’s easy to say, “That works for Randy but it won’t work for me”. I could have very well said during the early phases of this refinance, “That works for J.J. but it won’t work for me”. If I had done that I would have lost the opportunity to gain well over $100,000 in savings.
If nothing else I hope you understand how building equity and/or leaving some money for the kids is NOT accomplished by having a principal and interest loan. I know that is difficult for some folks to wrap their minds around.
What about people who have their house fully paid for? Sorry. I think that’s a bad idea. All of that equity earning absolutely nothing. What about the people who don’t own a house? Most of us who have had homeownership have benefited from the home’s appreciation over the years PLUS we had the chance to live in the home. Don’t own a house? Better change that!
Remember…Doing something costs something. Doing nothing costs something. And, quite often, doing nothing costs a lot more!
Randy Lewis
San Clemente, California
P.S. Some of you may have read this far and come to a simple conclusion. It will be a similar conclusion to why I don’t know when they come to pick up our trash. You know what I am saying is correct. You just don’t have any interest in the topic itself. Yes, I know it’s a good idea to have our trash picked up. I just don’t have any interest in the subject.
In that case, I recommend you take this to someone who understands what I am sharing. I’m not talking about your sister-in-law or favorite uncle. I’m talking about a professional who can objectively analyze the opportunity and your situation. I think you’ll be better off doing that.
If you like this idea but need someone to help with “next steps” I can put you in touch with “my Charles Schwab guy”. He saved the day for me. If that is something of interest let me know. You should know that I won’t get a penny for any business you might end up doing with Charles Schwab/Rocket Mortgage. Believe it or not, I just like helping people.