For some people, the Great Recession that hit the world at the end of 2007 and the beginning of 2008, was a fresh start and an opportunity. There are Americans who managed to buy their dream home right in those times of housing crash, when everything seemed so uncertain. This was the case with a family from California who decided on a cash-out refinance of their mortgage right at the moment when the crisis was setting in.
In 2000, they took a 30-year fixed rate mortgage for their first home, priced $200,000. The interest rate was 8.375% at that time. Over the next few years, they refinanced their home no less than five times, with the sole purpose of lowering the interest rate, the principal balance and the monthly payment. They also paid attention not to be charged with closing costs when refinancing.
When the time was right, with dropping interest rates and increasing home prices, this California family changed their mortgage from a 30-year fixed-rate loan to a 15-year fixed rate one. Thus, they began paying a lot more of the principal every month. With a growing family, the home soon became too small, and they started making plans for the future. They made a first attempt to sell in 2005, but the offers they received were too low.
Eventually they decided on a cash-out refinance and used the cash for the purchase of another home. They rented the existing home after contracting a new loan on it: a 30-year mortgage with a 5.625% interest rate. This family had the chance of covering all the mortgage expenses for their first home from rent, and still got a supplementary amount of cash every month. The situation continues to this day, with rent covering for mortgage and maintenance repairs on the house.
After refinancing on their first home, the family found their dream home. They already had the cash-out refinance and the sum of money was used for a larger down-payment ($168,000) for a new property. The housing crash made real estate prices to plunge, and this family paid $585,000 instead of $700,000, for a house in a suburb of San Diego.
When they first contracted this second mortgage in March 2008, they had a 30-year fixed rate jumbo loan with a 5.5% interest rate for the new home. Since then, they have refinanced both properties several time; both mortgages are 30-year fixed rate mortgages and have a 3.75% interest rate.
Although they made a risky move at a time of financial distress for the whole world, this family managed to purchase their dream home by reaching out their financial comfort zone. They are happy with the neighborhood of the new home: lots of space, green areas for the kids to play, great schools and closer to their home.
The current market trends with properties appreciating in value are extremely favorable for this family, who has not one but two properties. They started with a mortgage, a modest house and lots of determination. And look at them now!
This real-life story shows how careful budget planning and smart refinancing could make a difference for the kind of house that you can own. Their case would definitely be illustrative for other American families who manage their mortgage/s with a firm hand and looking confidently towards the future.