Welcome together, we're gonna explore our personal finances and figure out how to improve them. Whether you're just getting started in life on your finances, or you may already have a home and a car payment and you're struggling to get credit cards under control, or you again at a later start in life on saving for retirement, reduce debt increase. wealth.com is a podcast to educate those to improve personal finances, whether it's eliminating debt, or making smart investments. Hello, Mr. Chuck here, in this episode, we're gonna talk about cash out refinancing. But before we get started on doing that, I just want to remind you that on personal finance, you should have a plan. Your personal finance plan should include your goals that you would like to achieve money that you're saving to meet certain goals like saving for your children's college education, saving for your personal retirement, and other items you might be considering. The second, you need to consider your debt reduction plan. If you're taking the cash out on this refinancing, to pay down credit card debt, it may or may not be a good idea, it's likely that the loan is going to have a lower interest rate than credit cards. But I had a previous episode that I released on May, second of 2020, refinance debt consolidation and debt cancellation, where I go over the pros and cons of doing such a thing they con that I can think of off the top of my head is you're if you're gonna pay off credit card debt, you're gonna take unsecured debt, and make it secured by using your home as collateral. Do you really want to do that. So you need to apply the 30 day rule and sit down with your spouse. And talk about this. And that's it fit within your budget, is when you refinance, where your new mortgage and fall in to around 36% of your income or less, or are you creating your housing costs to go up and remember, your total housing cost is your loan payment, real estate tax and insurance on the home plus some maintenance fees and you want to keep that around 36%. Now lenders are gonna say your debt to income ratio, as long as your housing cost is lower than 43%, you're gonna be a candidate for the refinancing. I say, try to keep it within your budget, because you got other things you do in life, other than this paying for your home. Second, if you're only going to be in the home for a short period of time, I wouldn't even consider doing it. If you're going to stay in the home for another 10, 15 or 20 years, then the closing costs could be offset by the savings in the interest that you're not paying. It might seem like a good idea on the outset, you need to take everything into consideration before doing it. Okay, my first articles from the nerd wallet refinancing the pros and cons of pre AI. If you listen to my previous episode, it's probably about the same stuff in there as refinancing cash out is just you're going out and getting a brand new mortgage, and you're gonna pay off your old mortgage and take some of the equity that you build up in your home as cash. And if you're gonna do that, for remodeling, that's a good idea. You can do that use it to pay for your remodeling, and then the equity in your house, it's gonna build up that a note of interest, you need to make sure you don't take out more than 80% to 90% of your home's value. Because if you do in principle mortgage insurance will kick in and that can get expensive. It's between point five 5% and two and a quarter percent of your mortgage. So if you have$180,000 mortgage 1% PMI is going to cost you $1,800 a year. And that's money you could use to pay down other debt. So be aware of that. So before we really get started, and once you decide the 30 days are up, and he decided we're gonna do it, the first thing you need to do is shop for a lender, and you need to look for the lowest possible rate and the fees that they're gonna charge you. Sometimes you'll get a lower rate, but the fees may be way high. So you might want to pay a quarter percent more and pay less and fees. And over 10 1520 years, you definitely will save some money, if you're going to be selling a house and moving on. Because your plans are moving to a different neighborhood to be in a different school district for your children, or your gun, then you figure and you might get transferred from work, and then I would not even consider doing it. And that's my personal opinion, he can do what you want. That's why you need to consider the 30 day rule. And remember, your debt reduction plan is a one, stop creating new debt to make only the minimum payments on all your debt. And three, have a savings account and build up an emergency fund. And you want an emergency fund, so that you have money to pay for if your car breaks down, or if the water heater in your house goes out, you have money available to pay for those items, so you don't create new debt. A lot of lenders or mortgages will require you if you're gonna use it to pay off credit cards to close out those credit cards. And he don't want to do that if you can avoid it. Because if you close out credit cards, your credit utilization rate will drop. And that looks bad in the future. To lenders, you want to have a lot of credit, even if you're not using it so that your credit utilization rate looks good. Your debt to income ratio shouldn't be more than 43%, as most lenders would tell you, I say you want to keep it way under 40%. If your budgets if you have your budget set up and your say your current budget is 38% of your income, and you want to try to keep it in that range to make your life affordable, because you're going to be doing other things other than paying for your mortgage. And then the other article is the more detail. The first step you should do when you look in as fees and stuff. You got to get an appraisal on your home, you got to get approved by an underwriter and then everything's gonna fall into place you go to closing and they're going to give you the money. It's a fairly simple and easy process. If you've been through getting a mortgage in the past is the same process, it may take 30 days to get it done. Before you go forward on this refinancing. It's always a good idea to know, if you're using the money to remodel your home. It's a good investment. So the equity in your home will rise when the refinance or when the remodeling is completed. So you're going to be in good shape. Here, equity in your home will still be there. He made improvements, it's a good way to pay for large ticket items. Because of a lower interest rates, I would refrain from using the money to buy a new car and paying cash because that's not a good investment. A good investment is using the money to remove renovate or remodel a home that you're gonna live in for at least another 10 plus years. And when you get all done, you should look at the new loan and more dollar amount. Can you afford to pay it? Is it gonna put a crimp in your lifestyle? And if you're married and have a spouse, do you need two incomes in order to continue to pay your debt? What are you going to do if you start having children and your spouse quits working and once they home Will it be a struggle for you to make your home payment? Those are things you need to consider in the 30 days, when you're applying the 30 day rule. Again, paying off credit cards, it's a good thing. Because you can get a lower rate of interest and take an unsecured debt and making a secured debt. So if your spouse, if you have children, your spouse quits working, and something happens to your income and you get laid off, do you have a large enough emergency fund to get by for three or six months so that you can continue making those payments and not lose your home. All these things should be taken in consideration. Whenever you're looking to finance large dollar amounts no matter what you're going to use it for. Some people say buying a boat may be a good investment. That's a matter of opinion. Do you really want to use your home as collateral to buy a boat, that's probably going to go down in value over time, just like an automobile loses its value as soon as you drive it off the dealer's lot. And you're going to be stuck with paying for that. And there may come to the day where you're unable to do that. And those are the things you should be considering when refinancing. There are two articles and the first article is from the nerd wallet, cash out refinancing. Finance cash out, cash out refinance pros and cons. And the second article is how I cash out refinance works. And it gives you all the details and things you should be considering. And one of the good things to use is debt consolidation, pan off existing home equity line of credit, renovating the property and paying income tax bills. If you got an income tax bills that you got to borrow money to pay, you may have trouble getting the loan to start with. So you got to keep up with all your bills, and you got to make timely payments. And the first thing you should do before considering refinancing your home is set up a budget. Look at how much money you have coming in and how much money you're currently paying out. Take that old mortgage payment out and put in the new payment and look at what happens to your budget Are you going to have to cut back and other areas such as entertainment and food that maybe you don't want to do. Because there's more to life than just paying for a home. You got to live you got to eat you have. If you have children, you got to clothe them, you got to pay for school, school costs, all those other things that you have in life. When's it a bad idea cash out refinance can be a bad idea. If use the cash as a way to consider consolidate that and then run up the debt. Again, I advise my clients pursue a line of credit instead of cash out refinance, if they're looking to have an open line of credit available for emergency Home Improvements or short term purchases that they pay off within a short amount of time. That's their advice on that. Again, a line of credit is going to be a higher rate of interest if you're trying to get out of debt. And that's the main purpose of refinancing and taking out the refinance cash out refinance. Maybe you're on the right track. But before you do it, you need to look at other ways you can get that debt paid off without creating a new debt. And as I said earlier, if the new mortgage is going to have a lower rate of interest and last year's lower dollar amount on your monthly payment, then it may be a good thing to do and you can pay off some credit card debt. You don't want to close all those credit cards because as I said before your credit utilization rate will change to the bad Your credit score will change to the bad. And that would be a short term. And the long term, it may improve as you get more and more out of debt. And don't over borrow, so yet get stuck paying principal mortgage insurance or PMI. Some minimum credit scores you need for cash out refinance is typically 620 or better. However, FHA and VA cash out refinance loans may allow a slightly lower credit score lenders set their own minimum. So credit requirements can vary depending on where you apply. And again, the lower your score, the higher rate of interest you're going to have to have may not be a good idea to do it. Most all the banks and mortgage companies that are doing this for doing the same thing, just words of wisdom, words of thought, I always got a line of credit to pay for my home improvements. And theory, I thought, if I couldn't ever pay it off, someday, I'm going to sell the house. And when I sell the house, I'll pay off the loan and move on. working under that assumption. Remember that when you sell the house and you have more debt, that means less money goes to your pocket, which gives you less money for a down payment, wherever you move to and the less debt you have, the more equity you have. When you sell the home, the more money you're going to have in your own pocket, which gives you a better option when you look into replace your home at maybe at a new location. Maybe you're downsizing or even upsizing. Because now you have more children, and it says not a simple Oh, let's do it and pay off my debt. And I'll have three less credit card payments to make. And I'll say$3,000 a month because I pay$1,000 a month in each credit card. What's the minimum payment on those credit cards might only be$300. So if you quit paying the$3,000, and you put that in your savings, and you build up the emergency fund over two months, you have six grand and your emergency fund. And then another two months, you got 12 grand, and you plump $6,000 that down, you could pay off credit card and you're going to get those credit cards paid off fairly quick, without even refinancing and taking the cash out. And that's this an example of that may not be your situation. And I talked about budgets earlier in this episode. So I'm going to do a quick review on how to do an easy budget. And for those of you listening that hasn't heard about this, or don't have a budget, it's fairly simple. Take a piece of paper, and number one to 30 down the left side and go into your check register or go online checking in and write down all your monthly bills that you pay every month, such as all your utility bills, all your loan payments, all your credit card payments, and put them and the date that they are due. So if your mortgage is due on the first you record the name of the mortgage company on the first and the dollar amount, how much do you pay and do that for a full month. If you go to the grocery store, like every Friday, we figure out an average goes through the past month and add them all up divided by the number of times you went to the grocery store. And that would be your average cost for food and record that on every Friday of the month. So whichever day falls closest to a Friday, I use that for a particular month. The goal here is and put in the date that you receive your paycheck and that amount of pay. The goal here is to identify what you're paying and when you're paying and how much you're paying every month. Once you get all that done for everything that's necessary. food, housing, transportation and some entertainment you can look at. What am I wasting my money on? What can I cut out of this and have more money to put in to my savings account. To build up my emergency fund is that simple. If your pay is different from week to week, like mine is I get paid every week. But it's always different. I go back four weeks, eight weeks, add them all up, divided, use an average. Over time, you'll get a close, it doesn't have to be exact. It's just got to be in the ballpark. So that's how you do and easy budget. Identify when you're all done, identify things that you don't necessarily use, such as maybe a gym membership, or maybe a subscription for a anti virus on your computer for a computer you no longer have and cancel those items. So your quit wasting your money. If you're paying for cable TV, you look at other ways to get your TV that costs less money. And that would be streaming and using an antenna and get your local channels. For those with good ears, they're heard the clicking sounds in this episode, I'm sorry, I've changed in my equipment set up and it's a lot more sensitive now. I'll try to be more careful in the future to prevent that from happening. That's the end of another episode. I hope you found it useful. And if you'd like to share this episode with your friends, please do so. I'm open for any suggestions for improvement or for information that you would like to talk about in future episodes. He can go to my Facebook page and leave me a message more than glad to comply. 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