This "quick tip" could save you thousands of dollars per year!

What if I told you that a simple phone call could possibly save you hundreds, and quite possibly thousands of dollars a year? What if you could add a couple of zeros to your bottom line every year in less than 30 minutes? Will you be one who takes action or one who sits back giving away money every year? For only a few minutes and a few hundred dollars you could be saving BIG money!

Would you like to hear about my $497 system? Too bad, because I don’t have one. Yes, if this “trick” will work for you it will cost you a few hundred dollars but who wouldn’t spend a few hundred dollars to save a few thousand? It’s not some strategy that no one has thought of before. It is however, a strategy/idea/trick that a lot of people don’t think of or aren’t aware of. I wasn’t until my wife alerted me to it. And it’s not just for real estate investors, it’s for anyone who owns a home.

We purchased our current home in 2012 when things were still pretty down in the area we live, Santa Maria, California. We purchased a 4 BR (really 3 because one room doesn’t have a closet but it was advertised as 4) 2 ½ bath single-family detached house in a PUD community. We got what we felt was a good deal at $225,000 with 5% down using an FHA loan. The house was a foreclosure but didn’t need much besides new flooring and paint. Fast forward just over 2 years and the market has picked up and inventory is relatively low. A house behind us which is an exact model match recently sold for $315,000 and we just saw another one on the market today for $319,000. Not bad for 2 years and relatively little work put into our house.

My wife has been in the mortgage industry for over 13 years and has an insane amount of knowledge in many areas of financing a home. She gets so caught up in serving her clients that sometimes she forgets to think about things that we could do to save ourselves some money. We’ve talked about refinancing but we already have a very low interest rate, 3.875%, so it wouldn’t do us much good. We did recently take out a home equity line of credit (HELOC) to be able to have some of our equity work for us. You can read my other posts on my blog which document the process of our first flip that we’re just starting.

As many of you know, when you purchase a house or investment using conventional financing and you put less than 20% down you typically have to pay Private Mortgage Insurance (PMI). This is an insurance policy that you pay for but that doesn’t protect you in any way. Your lender will require you to pay this insurance to protect them in the case that you default, as a concession for letting you put less than 20% down. The loan is riskier for them so they want to protect themselves. Typically, once you have paid down your mortgage to the point where you owe 80% or less of the original loan amount then the PMI stops and your payment goes down. Be sure to check with your mortgage company if you have paid down your mortgage to this point however as banks aren’t always on top of this.

Seeing that we bought our house just over 2 years ago with only 5% down, while we do pay slightly over the required amount each month on our mortgage we haven’t reduced the principal balance by 15% or anywhere close to it. So how can you save thousands of dollars per year like we are without paying down your balance? It’s simple, call your lender! As I stated, we bought our house for $225,000 with 5% down, meaning we had a loan balance of just over $213,000. To get to 80% of our loan value we would need to reduce our loan balance to approximately $180,000. Our loan balance is a little less now, around $205,000 but we don’t have $25,000 laying around to get our loan balance that low. Thankfully the market is strong where we live and the prices have gone up. If our house is now worth around $315,000, in order to have a loan to value of 80% or less our loan balance would need to be $252,000 or less. Since we bought our house for $225,000 our loan balance is definitely less than $252,000.

Last month I called our bank and inquired about eliminating our PMI. They said I had a couple of options to achieve this and explained each quickly. The first option was to make a one-time payment toward our principal balance to get it below the required LTV amount. Each lender is different so your LTV may need to be lower, such as 78% or 75% to eliminate the PMI so check with your lender to see what their requirement is. I was told I could make a one-time payment of approximately $29,000 to bring down my principal balance which I quickly ignored. I don’t want to pay $29,000 to save a few thousand dollars a year. The second option was much more appealing.

We paid $360 to have our home appraised by a company that Wells Fargo uses. As I stated, it will cost you a few hundred dollars but it can be well worth it. If you don’t think your home or rental property has appreciated enough then it’s your decision whether to spend the money on the appraisal or not. Previously we were paying $192 per month in PMI. That has now been eliminated meaning we are saving $2,304 per year for spending 15 minutes on the phone and paying $360 for an appraisal. So if you subtract the appraisal fee then true, we’re only saving $1,944 this year but I’ll still take it. Had we waited until we had paid down our mortgage the additional 15% to get to an 80% LTV our PMI wouldn’t have been eliminated until June, 2020, about 5 ½ years from now! At $2,304 per year that means if we stay in our house that long we will have saved $12,672! That’s just on our primary residence. We have put 25% down on all of our rental properties so this won’t help us in those cases but for investors who have purchased properties with 3%, 5%, or anything less than 20% down, you could do this with every property.

Obviously this only works if the market where you own your primary residence and/or your rentals has gone up more than slightly. In areas like the Midwest where cash flow is usually great but appreciation is typically relatively small it may not work. For those of you who have invested in markets where appreciation is stronger however this could save you huge amounts of money each year.

We’re enjoying the extra cash every month and hope that this can help you achieve the levels of success you are looking for faster as well.

Cheers!