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Originally published Friday, March 23, 2012 at 8:00 PM

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Sweat equity pays off for homeowner trying to refinance mortgage

First-time buyer feels as if she's done her part to help rehabilitate community.

The New York Times

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ATLANTA — When I bought a home out of foreclosure in 2009, it took more than 1,000 hours from beginning to end.

I visited properties, looked up county tax records and considered neighborhoods while researching comparable home values. I assembled a team that included two tenacious real-estate professionals; a first-rate contractor; a mortgage broker to help navigate the tangle of Federal Housing Administration, IRS and city and county regulations; as well as my parents.

To anyone driving by, my home is a modest bungalow in Edgewood, a working-class neighborhood about two miles east of downtown Atlanta. To me, it is a labor of love in a community I consider my adopted home.

I wasn't sure what it would mean to a banker, though. Three months ago, I decided to try to refinance my mortgage, knowing that the current record-breaking low interest rates would not last forever, and that they represented the best opportunity in more than a generation to finance a home. To get approval, I had to have an appraisal of $135,000 or higher.

Sales activity had been brisk, so I felt confident in my home's value. But I had also received enough alarming alerts from Zillow.com, the real-estate-tracking website, to justify my concern. My monthly emailed "Zestimate" from Zillow dropped 4 percent, then 8 percent, then in just one month a heart-stopping 25 percent.

On Jan. 6, the envelope arrived from Wells Fargo. As I held my breath and opened it, I realized that the letter was a verdict of sorts. The bank was rendering judgment not just on the economic value of my time and investment but on whether I had done my part to help the neighborhood recover, too.

The economic crisis was a major setback for the neighborhood's development. According to Trulia, another real-estate-tracking website, the median sales price in Edgewood, which was $101,698 in the first quarter of 2012, has dropped 20 percent since last year (and 37 percent since five years ago).

In my county, DeKalb, there were more than 10,000 new foreclosure filings in 2011, according to the Atlanta Regional Commission's report on foreclosures, to say nothing of homes sitting empty because they are in limbo with the banks or because investors abandoned them.

From a purely financial perspective, only the bank's opinion of me and my work on the house mattered. And in January, when I opened the appraisal envelope, the bank offered its affirmation. My new appraisal came in at $150,000.

When I had applied for the $100,000 loan, I received appraisals of $130,000 and $145,000. Seeing that my home's value had gone up as much as 15 percent in the eyes of my appraiser was splendid news.

Based on this new appraisal, I refinanced into a 20-year fixed-rate loan at 3.875 percent. This took eight years and 1.375 percentage points off my original loan. I'll be saving around $100 a month in mortgage payments and fees and around $56,000 in interest over the life of the loan. But if I continue to pay more than the minimum payment, I will very likely have my home paid off in about 14 years, which will save me an additional $23,000.

My neighborhood still has its challenges. But with interest rates low (and rents high), homebuying is once again a bargain for many. Each week, I see young couples snapping up little bungalows in my area.

As for the economic comeback at large, many experts believe that the recovery of the housing market is necessary to the recovery of the overall economy. And now I know that I've done my part. Rehabilitating an empty home is good for the community; it improves home values for everyone on my street. So I don't see buying a foreclosed home as taking advantage of others' misfortune or making risky decisions that will contribute to the next crisis.

Quite the contrary: As the employment situation improves, young adults will have the opportunity to make the same move that I did and we will play significant roles in stimulating further economic recovery. I hope we will be able to do it with less personal debt and more savings, which will lead to greater overall stability.

Remembering how certain I was just three years ago that the American dream had drifted out of reach, it feels remarkable to look around at my little home, my growing equity, my affordable cost of living and my lovely neighbors, some of whom have lived here for nearly 70 years.

Sure, I haven't forgotten the guts it took for my parents to help finance the sale, nor the hundreds of hours of manual labor I poured into every corner of my home. Still, it's hard to imagine a more favorable market for young Americans and middle-class families to try to do what I did.

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