Real Estate the Ramsey Way - When Should I Refinance My Home?

Episode Date: October 21, 2024

Your home should be a blessing, not a burden—but unfortunately, some people learn that the hard way. Get the answers you need with Real Estate The Ramsey Way, and learn what to avoid and how to do real estate the right way.   Next steps: 🏠Have questions about how real estate can help you reach your financial goals? Check out our Real Estate Home Base for free tools and resources to guide your next steps.   🏠And if you’re ready to buy or sell your home, connect with a RamseyTrusted® real estate agent. They’re experts who’ll help you confidently navigate homeownership the way we teach.     Listen to more from Ramsey Network 🎙️ The Ramsey Show   🧠 The Dr. John Delony Show 🍸 Smart Money Happy Hour 💡 The Rachel Cruze Show 💰 George Kamel 💼 The Ken Coleman Show 📈 EntreLeadership 💸 The Ramsey Show Highlights   Learn more about your ad choices.  https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy

Dave Ramsey here and welcome to another episode of Real Estate, the Ramsey Way, where you'll learn how to make smart home decisions, avoid costly mistakes, and navigate homeownership with confidence. Up next, we have Shannon in Pensacola, Florida. Hey, Shannon. Welcome to the show. How are you all? We're doing well.

Thanks for calling. How can we help? Well, I just have a random question because I've been getting a shot on a home. here in Pensacola. That's my only debt. And I have a current interest rate at 7.49. And I've been getting, you know, I just feel like there's just so much fraud going on. And I don't know how y'all feel about that.

What kind of fraud? What do you mean? Well, I just mean like on so many different rebels. So I had a kid called me today who said, oh, well, we can give you, you have an F. J loan so we can give you a five point. I don't know what he said, four, two and, oh, no money down. I go, wait a minute. I'm a business development person.

I'm like, well, what's in it for you guys? So he wanted you to refinance, and he's going to get the fees associated with that. He wanted me to refinance, but I'm like, wait a minute. How does this work out? Because I keep in touch with my current mortgage broker that I use to buy the home. I keep in touch with her and I say, hey, what are they at? Because I got a letter from FHA who said, hey, we can go down to 5.25 to 5.2%. And I just wanted to know y'all's thoughts on that. And I just feel like, I'm like, okay. I mean, you're right.

I need to wait. And I know this election, there's just so much. All right. All right, all right, Shannon. Do it again. Shannon. Let's roll it on home. All right. Here's the thing. Yeah.

Yes. I think that we are starting to be at a turning point when we're going to see. I mean, we already have seen mortgage interest rates go down. And I think they're going down again this month. They should. Yeah. They should. And we might even see it before they release, you know, their report or in their report of the interest rates, whatever.

But my point is you get to decide, right? if you don't want to refinance, you don't have to refinance. And if there's an offer... You want my mortgage to go down, y'all. Okay. Well, if there's an offer that presents itself to you and you're interested in it, I just, you started out the conversation and started talking about scams. And then we kind of went to the election, then we kind of went to interest rates.

And I want to kind of clear it out. Being able to refinance your house at a lower interest rates, not a scam, unless you do your due diligence. find, okay, this is not reputable. Unless you use a scammer for it. It's some random guy that calls you. I probably wouldn't use him. I just think the guy that called me, I'm just making a point.

It's like, oh, it doesn't cost you anything. And I'm like, hmm, wait a minute. That's kind of where I'm coming down. So, yeah, they're probably, to your point, anything that comes up that is exciting right now, we find this always in the financial industry, there's always going to be people prying on that, right? So whether it's mortgage, you know, mortgage rates are dropping, so people are going to clamor to refinance and there may be scammers out of that.

That's right. Crypto became a big thing. Scammers flock to that. They will flock to try to get people's money. So that's where your discernment, Shannon, comes in, that if you choose and probably will and anyone listening refinancing, you know, if you're going to be in the house long term, it's a great option. Yeah.

And so maybe you wait another six months to see, you continue after the election to see if it keeps dropping. And then maybe Shannon, you decide to do that. Then I would use a reputable broker, whether you have one, Churchill mortgage. is one that we recommend here at Ramsey. I'm from Oklahoma. She's from Oklahoma and I'm a trust her. Yeah, that's great.

That's great. Yeah, yeah. So doing it reputably. So yeah, I think for sure that it would be, I think it's a great option. And people will be doing that more and more. And I think you had great advice, sir, Rachel. If you're looking at rates and you're seeing them go down,

I wouldn't, like, jump to refinance instantly. I'd like, let it happen. Let them roll back because they're probably not going to jump right back up. Right. We have finally got into the point where it's like, okay, inflation is at this point, unemployment's at this point. It has to happen. So I'm with you. I'd probably wait until after the election, let the chips fall where they do.

And then you can make the wisest decision. For sure. Liz is up next in Spokane, Washington. Liz, how can we help? Hi, Ken. Hi, Jade. I have a question about buying my first house. Okay.

All right. So I am 26. I make 140K per year. My take-home pay after taxes is about 110 per year. I have no debt. I have 60K in retirement and 60K in cash. I'm starting to kind of think about what it's going to be like to buy my first house. However, I'm really, really debt adverse, and the thought of getting a mortgage is absolutely terrifying.

So I've always wanted to save up and buy house cash. That's kind of always been, you know, my goal that I would hope to do. So currently I'm saving about $40K per year in cash savings. So at that rate, where I live, it would take me probably six or seven years to pay up for a house, which would be okay. But I'm afraid that in six or seven years, you know, houses are not going to be 300K. Now they're going to be 400K. And so I'm afraid that if I save up and buy cash, I'll be spending, you know, 10 or 15 years saving. Sure.

And then paying essentially double what I would have paid if I had just bought now. Yeah. So I'm just kind of torn between getting a mortgage or not. Yeah, there's a part to that where you're chasing, you're constantly chasing, you know, that. that rainbow as far as the house price is concerned. So while I agree with you, being able to pay cash for a house is excellent. And that's really the number one way that if you can buy a house, you should buy a house. But there does come a point where, you know, for the average person with their average salary, there is a point where it's like, okay, shouldn't I just jump in already?

And I think in your case, the answer to that would be yes, but at what point? So just to recap, There's no debt. You said you have 60K in cash, 60K and a 401K. Is that what I heard? Is there any other liquid money? No, that's everything. Okay. Yeah, and it's not just 401K.

It's mostly Roth. There's some in a Roth, some of the 401K, and then a little bit of that is just personal investments. I think maybe about 10 to 15K. Okay, the 10 to 15K, that's personal investments like a brokerage account, non-retirement? Yes, ma'am. Okay.

And is it, what's that year marked for? Um, retirement as well. I, at my current career track, I plan that I'll probably be retiring before I'm able to withdraw from my retirement. Okay. So it's like a bridge. I just also want to have a little bit. Yeah. Okay. So that's earmarked for that. So that means we won't touch it. Is it in mutual funds? It's not in like single stocks and stuff like that. Correct. It's a mutual fund. Good deal. Okay. So right now, unless I'm missing something, I'm seeing a person with a great income with three to six months of expenses, which is basically your 60K that's around six months or more. What portion of, that 60K can you put towards a down payment? So my expenses right now are actually really quite low. And so I only have 10K of that as my emergency fund. And then the other 50K is currently my house fund. Okay. So 10K, how does that work?

You're saying that you can exist for six months on $10,000? No, that's three months. Okay, three months. Yeah. Are you single? Are you single? I'm just, I'm poking holes in this because since you're afraid. I want to make sure that everything is right on so you don't have to be afraid of anything.

Here's where I would poke holes in your emergency fund. A, because it's the only income you have going in and it's just you, one stream of income makes me want six months of expenses. Because if something happens, it's all on you. So that's the first thing that I would beef up and that's going to make you feel better. Second thing I'd beef up is if you buy this house, what it takes to keep your life going also goes up slightly. So if you really really, really want to feel great about this, you'd kind of project it out and say, okay, if I get this house for $280,000 or for $300,000, what's my mortgage going to be? What's my life going to look like? And really, what would six months be of that lifestyle? Because that's the lifestyle you're going

into. That might be what I would shoot for in your case, right? What you're going towards. And then from there, it's like, okay, now let's talk about our down payment. To your point, you're saving $40,000 a year. How much do you need to have? Like, what do you want to get to? Do you want to get to 50% down? Do you want to get to 40% down, 20% down? So I would start running those numbers out. I wouldn't go beyond like a two-year, three-year deal on this. That's as long as I take to save up, assuming you've already got the 5% to 20%. Gotcha. Okay. So yeah, I definitely want to do 20% minimum. I'm not really willing to do any less than that. But you think instead of saying, okay, I'm going to save up to 50%, I should say, I'm going to save it for three years and as long as I

have over 20% and move forward at that point. Yeah, I'd either set it at a dollar amount, or a time amount and that's up to you because part of this is I don't want this because you're if you're toggling between baby step 3b which is saving for the down payment and baby step four which is saving 15% I do want a time limit on this because I want to make sure that you're investing 15% sooner than later but if you're not toggling if you're like listen I'm doing the 15% now and I still have a lot of margin yeah play with the three year span but like I said I I mean, Ken, if it's me, I'm pulling the trigger at least after like three years. I don't think I'm going to run this out seven years.

I agree with your reasoning because you want to investing, and we want you to start to get the compound interest going. How old are you? I'm 26. Oh, yeah. So Jay's got you at 29, you know, and still that gives you a lot of time to invest. The other thing I would be thinking about is, is, okay, let me rework this and go, all right, this number I want to get. If I wanted to get to that number, I don't mind you shooting for 50 percent. down. Don't think you have to. And I agree with Jade. But let's say you want to do that. You're single

now. So I would start to go, what would I have to do and how much would I have to make in addition to what I'm already making and saving to get to that number in the same three-year period? I would at least run that exercise, right? So for instance, if you said to me and I'm making this up, I'd have to save another $20,000 a year. I'm just using that as a random number in order to get to this number with three years that Jade is coaching me on, because I think Jay's absolutely right on that. Two to three years to me is right. So I would then go, all right. So if it's 20,000 more, then that's X amount a month.

I've got to save it. I'm going to go make that. And I'm going to make this thing happen faster. I just think that would be something I would consider. Yeah. I mean, three years, you said 40,000 a year. Three years gets you 40, 80, 120. Right?

Yeah. Which is great. If you wanted to add an additional 20 per year there, you start breaking that down. and that's, you know, less than $1,500 a month, or right at that, right? Is my math right? No, no, it's a little bit shy of that. So it's just a little bit above $1,500 more a month, get you an additional $20,000.

So, you know, it's that kind of thing just to start looking at all your options to go, oh, okay, but I think Jade's right in wanting to get you investing that 15% as soon as possible. Well, so I think that's part of it as well. I am already investing. currently my savings that gets me to about 40K, I have about 60K of extra income per year that I don't need or spend on anything. And so currently 40K of that is going into savings and 20K is going into hitting my Roth contribution and then extra investing on top of that.

So you're investing? Are you investing more than 15%? Yes, I am. Okay, I would swap that. Yeah, there you go. There's your money right there. Hit 15%. That's max right now.

focus everything else at the down payment. And then once you buy the house, now that extra money goes to pay off the house. And then you're going to have exactly what you want really, really quickly, which is a paid off house that you don't owe anybody on. And then once the house is paid off, then you can take that margin that you have and you can throw all of it out of your investments. So number one, like Liz, you're amazing. Hey, I want to make sure that you have everything you need. You can check out Ramsey Solutions.com slash real estate. And it's a hub that's got every everything that you could ever need. And when the time comes for you to actually get the house and start looking, you can go to

Ramsey Solutions.com slash agent. And that's where you can find a really great agent to help you find the perfect house for you in your price range. Yeah, awesome. Love that. And love just how focus she is. Man, I wasn't like that at that age. Are you kidding me?

She's going to be fine, one way or the other. And I thought that was really good advice. Now, now it's nice in there. She's actually already invested the 15%. So really good stuff. We're going to be.