A Freelancer's Out-of-the-Box View of Traditional Mortgage Refinancing (Not Just for Freelancers But for Anyone Who Owns a Home)

First, the term "freelancer" should give you several hints. Like, for instance, I don't make $1,000 (or any other figure you may choose) twice a month. I don't have automatic deposits of this fictional $1,000 on the first and the fifteenth into my bank account. Some months I don't make any money. Other months I make enough to cover the next month as well. Most months I make enough to cover my bills for that particular thirty-day period.

Second, sometimes the term "freelancer" is synonymous with "broke." But it's only a temporary state of brokeness. As a freelancer, you just don't know how long that period will last.

You need guts and faith and determination to succeed when self-employed.

I love working for myself and count any financial hardships as part of the job. In other words, I'm not all about the money. Only enough to pay my bills. Even to the point of working a second (and, at one time, a third) job too. So keep that in mind if you wish to follow my lead to become a freelancer.

However, my findings below could be of great help to a homeowner with a traditional day job too.

Third, I'm no financial guru, just a working gal with years of experience in the trenches. What follows is my most recent learning opportunity.

This idea to refi all started with something I saw online about HARP ending this year (not that it can't be renewed for another year but you'll have to check that out for yourself). But I don't qualify for HARP as my current mortgage is a conventional loan, not a Fannie Mae or a Freddie Mac (a government-issued/approved loan).

I then checked out HAMP, but I don't qualify for that either as it seems to be for those "underwater" folks (meaning, their mortgages are upside down, owing more than what the property is currently worth on the market), while I am grossly "overwater" (my own term, BTW; meaning, I owe way, way, WAY less than the current market value of my property, whether going by Zestimate or by my local county tax assessor).

And I want to keep my house in the family, even when I die, passing it on as a hopefully paid-for asset, so what little I know about reverse mortgages doesn't work for me. But, if any of you are interested in that vehicle, you'll need to conduct your own research and due diligence.

So I recently tried to refi my mortgage at my small local bank (not one of the big countrywide chains) to get a much better interest rate and to lower my monthly payment. However, as a freelancer, I couldn't easily qualify, like when I worked as a legal assistant (with consistent and equal income payments), at the time I originally bought this property, as a first-time homeowner. And it seems banks tend to look to refis as debts to sell, mostly to those entities seeking loans which meet the government standards of Fannie Mae or Freddie Mac funding.

Therefore, my back-end ratio (based on my current mortgage payment) was excessive and threw me out of consideration for any refi (from any bank at least) even though my front-end ratio (based on any new mortgage payment) was in the barely acceptable range.

Yet I'm shaking my head. Regardless of the ratios, I'm making those mortgage payments that the banks/government deem me unreliable to make. And for the last eighteen years at the same address.

Sigh.

AND, like I mentioned above, my current mortgage balance is way below market value, almost a full one-third of what my property lists for today per Zestimate. Regardless of its market value or its Zestimate valuation, this land is where I plan to live for the rest of my life. Obviously having property as an asset for a mortgage loan is immaterial in the bank's point of view, which is mind-boggling at first glance.

Even the taunt of repossessing my home, should I fail to make those mortgage payments (as predetermined by faulty ratios used by banks) and for seven months in a row (as per a quick internet search into what constitutes foreclosure factors), isn't enough of a lure to induce banks to lend me the money. Even with a $4,000 "hickey" (from my viewpoint) earned up front by the lending bank.

Still shaking my head ...

Which makes me think the banks are more interested in a guaranteed payment of a fixed amount each month.

Hmm.

Kinda like what I would want too in my own business.

Plus, per my local bank  (not one of the big chains either), I would have to double this year's income in order to be considered for a refi to meet those needed ratios.

YET, when I figure out how to pay off this current mortgage in six years (an acceleration for sure), I only need $418 more than my normal payment a month (to start with) to accomplish this. Granted, I should add roughly $1.17 to this principal-only extra payment figure and increase it by at least $0.03 each month to keep in alignment with an online amortization schedule (or so it appears by a comparison of my last three monthly mortgage statements).

In my mind, this converts my current high interest rate on my mortgage into a much more pleasing "net" rate of interest (by saving years' worth of interest payments).

This seems more feasible to me, and I am currently researching flexible online work to accomplish this (consider this my second job) which still allows me the time I need to focus foremost on copyediting projects (my first job). I have also reframed my mind-set as to this second-job search about being something to help me get out from under my mortgage faster.

Like I wrote in my last blog post, seek those long-term fixes (paying off your mortgage as early as possible) over the short-term (a refi, with fixed fees of about $4,000 added in from the very first, per my bank anyway). That $4,000 figure was enough to dissuade me from any refi option. I have worked too hard to pay down my mortgage to have this much added back in.

No. That doesn't work for me, not with my situation. Neither does a second mortgage. So, if you ever consider a refi, rethink your options as to paying off your current mortgage earlier.

Such are the random thoughts of this freelancer as to the traditional refi process in the States.

Not having a mortgage payment would be a big boon to any freelancer or to any 9-to-5 worker alike. Granted, I'll still have to pay insurance on my home. I'll still have to pay property taxes. But I'm paying them anyway. And I'll save much more money by paying off my mortgage.

Wish me luck.

Welcome to My World, Where Every Day Is a Saturday

Denise Barker, Author, Blogger, Copy Editor
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Finance 101 for Freelancers: 9 Tips for Today

First off, I am no financial guru. Yet I've made it through almost nine years of freelancing and still have my not-yet-paid-off home of seventeen years to prove it. Two things helped: (a) I got two day jobs when needed (one working at a pizza place for nine months; another working at a box store for two long years). You'll note both of these are low-level entry positions which allowed me the freedom of working various hours and days (around my freelance projects), plus I gave my two weeks' notice and knew I could be rehired later, if my finances again needed the extra infusion. (b) The other thing is that you may need a roommate, not the freeloading kind but one who can chip in more when you're having a really slow month or three. This can even work with another freelancing roommate, but you've got to be prepared for those really slim times when both of you have no money coming in.

Second, I'm just one freelancer, sharing her thoughts. As I tell my copyediting clients—after setting forth the applicable grammar/spelling rule(s) so they can make an informed decision—take what resonates from my edits and suggestions and toss the rest. The same maxim applies here. However, even if you don't (yet) agree with my suggestions offered below, you may hit upon a better rendition for you (even for others; please share!).

Third, despite all the great financial info out there (pay yourself first, set up autosavings, etc.), none of that helps the proverbial starving artist or struggling freelancer. I do not have autodrafts for my bills set up as there are times when I'll have $0.88 in my account for weeks on end. So I have to manually pay my bills. Which, as mentioned before, is working for me. If you are not the most reliable one to take on this manual approach to bill-paying, then hopefully your roommate/partner/spouse is better at it. Let them take the reins on this one.

Fourth, for a freelancer, you have to change your monetary focus on those long-term goals and reset to ponder short-term goals. And it's a sliding scale. If you have money to cover your monthly bare-bones expenses (and you do know what that exact figure is, right?), great. And, just to be clear here, "bare-bones expenses" does not include house taxes (if you pay them separately, if you do not have them added into your monthly mortgage payment) and does not include IRS taxes unless this particular month includes an estimated quarterly tax payment deadline. So just the mortgage/rent payment, utilities, food, car gas (if needed). Now, if you don't have money to cover just this month's bills, don't let that worry you. For now. Do you have enough for today? And by that I mean, food, water, shelter, clothing, even money to pay a bill due tomorrow or the next day. Then consider yourself lucky and blessed.

Fifth, DON'T WORRY. I still do, but maybe this will remind me not to. In the freelance world, tomorrow you could have five prepaid projects coming in within the span of five minutes. Or you could get five prepaid jobs, one a day over the span of the next five consecutive days. The point here is, you don't know what tomorrow will bring. So be happy with what you've got today. Tomorrow may have more pleasant surprises for you. With the freelancing life, you've got to have hope and faith. A lot of each.

Sixth, I know when I have a really great month (exceeding my entire monthly expenses' needs, meaning one-twelfth of the house taxes and one-thirdish of the next estimated tax payment to the IRS), I have the urge to pay a principal-only mortgage payment or to make a double payment on my HVAC loan with its remaining balance edging closer and closer to $1,000. DON'T. My son pointed this out to me, and it is so true. When you make that extra principal-only mortgage payment, it does not negate next month's mortgage payment. And, granted, the principle-only payment is nowhere near the P&I payment due monthly. But it's a start in the right direction if you have that sitting in your account, correct? So resist that urge to pay more than the required payment on ANY bill. Instead set aside that $100 or whatever into a savings account or your hidey-hole at home or for your extremely trustworthy roommate to sequester until those last three months of the year where you have no business to speak of. Which is my particular annual event.

Seventh, in my scenario, (a) I have no credit cards (only debit cards) as I happen to think credit cards are of the devil. They should be outlawed in my opinion. And pushing them on college-age kids is akin to pushing drugs on kindergarteners. Just my opinion here. (b) Plus my twenty-four-year-old car (that I love) is paid off. So think twice about jumping headfirst into your own business, foregoing that steady-paycheck day job if you have credit card debt and a huge car payment and live by yourself, even if your mortgage is paid off. Believe me, your freelancing days will give you plenty of freedom but it may take years before you ever make the money you did in the corporate world. Just saying ...

SIDE NOTE HERE: Some of us are meant to be our own bosses (me, for instance). Others of us are meant to be in the corporate world, working for a boss. As long as you know your rightful place, you should be happy working there. However, be forewarned. If you are more security focused, then you need to stay in that 9-to-5 job with the paychecks coming on the first and the fifteenth of each month, like clockwork, and in the exact same amount each time. Now, if you are more like me, and freedom means more to you than a set amount being deposited into your account twice monthly, then maybe you should try freelancing on the side, as you pay down your debts and pay off your car note (keeping that day job for now), until you can minimize your expenses and truly start off on the right foot to being your own boss. It's a heady feeling.

Eighth, when you're really hurting for money, and you can't seem to get a day job (or your car is dead in the garage and now you must restrict your day-job options to those businesses nearby that you can walk to), do what Marianne Williamson advocates: empty a drawer. I swear it worked for me earlier at the start of this year. Something about nature's law of a vacuum. The universe seeks to fill it.

Ninth, this is one tip from the "normal" financial world that works in the freelancer's world as well. Diversify. Have multiple streams of income. Don't put all your eggs in one basket. That way, hopefully, when one stream dries up (temporarily or permanently), you'll have others to support you in the meantime as you reassess your options.

Okay, that's it for my financial tips for you today. My mind kept nagging me to share this, so, now that I've done so, maybe my brain will turn to something else, like creative ideas for my first-ever fiction series. That would be wonderful.

Are you an experienced freelancer with more operating advice for me, for us? Would love to hear it.

Take care, all.

"If your vocation isn’t a vacation, then quit, leap, change careers."

Denise Barker, Author, Blogger, Copy Editor
Books that Build Character(s)

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