As an African-American woman, there are some things I fear more than police brutality.
Like a growing Black and brown renter class.
There's a relationship here. Bear with me.
My office is the across the hall from a realty. There's a Latina realtor there who I speak with occasionally in the hallway. I can tell she works hard. We started talking about home ownership among black and brown folks. She's scared, too.
She's scared that the foreclosure crisis, and the intentional targeting of black and brown people for subprime mortgages by Wells Fargo, Countrywide/Bank of America and other major mortgage lenders, will permanently scare off black and brown folks from home ownership.
She's scared, as I am, that if our people stay away from home ownership, the wealth gap that currently exists between whites and black and brown people will widen even more.
She's scared, as I am, that if our people stay away from home ownership, the harder it will be for them to get into home ownership once they see the error of their ways.
And trust me, folks of any color who dismiss home ownership as "something only white people do," (and yes, I've heard that), are condemning themselves to another form of slavery: Renting.
Investors at home and abroad are COUNTING on this black and brown growing renter class. I saw a story on the news a while back about foreign investors buying up tracts of brand new houses in Atlanta for the sole purposes of renting to folks who had lost their homes but still wanted to live in quality neighborhoods. We all know that black and brown people disproportionately lost their homes in Atlanta during the Great Recession. And instead of starting over and starting with what they can afford, the siren song of renting in an area where you can't afford will lead black and brown folks back down the path of rental slavery.
Investors from China are buying up Detroit homes on the cheap for rental property. We all know that black and brown people disproportionately lost their homes in Detroit in the Great Recession.
Get the picture?
Allow me to digress again. I recently had the pleasure of meeting an elderly, white retired U.S. Army colonel while on vacation with Black Man Not Blogging. We started a conversation with the colonel because he was wearing a Red Tails Society hat and was surprised that we knew about the Tuskegee Airmen and the red tails on their planes. He mentioned that he was a former Army aviator who was committed to preserving the memory and history of the Tuskegee Airman. "We're losing them more and more each day," he lamented.
We got on the subject of home ownership. He said he had been married for 61 years before he lost his wife, and they bought their home in a California coastal town for $126,000 a long time ago, and it is now worth way more than that. He talked about how he inherited his brother's estate and, with that inheritance, was able to put "5 and a half" of his grandchildren through college without debt. The half? "One of my grandkids was stubborn about attending a private college, so we couldn't pay all of her costs." He then mentioned that his late wife had inherited shares of stock in Caterpillar from her great-grandfather, who bought them when the company first went public. The shares continued to split over time, and now he gets a check for $5,000 a year in dividends. He mentioned helping one of his children buy a house in East Menlo Park at a time when no one wanted to live there. They bought it for thousands, sold it for millions. The appreciation in the price of his late wife's stock didn't impress him nearly as much as the appreciation in land that he and his family had experienced. He chuckled, "Some people are paper people; some are land people. We're land people."
Because of the power of ownership, the Colonel was not only able to put "5 and a half" of his grandchildren through college, but to live a comfortable life in his later years.
I can personally attest to the power of ownership in my own family. My parents owned their home. Both sets of my grandparents owned their homes. Almost all of the aunts and uncle on both sides of the family owned their homes.
With the house that my parents paid off, my father was able to take out equity and buy a new house when he remarried after my mother's death. He then quitclaimed the house to my sister. When the real estate boom happened, she sold the house at the top of the market to my brother, took the profits, and went in with my other sister on a brand new HUGE house in a gated neighborhood. Not bad for two government workers who had been livin' in the hood. And it all sprang from my mom and dad paying off their mortgage on their $19,000 house, $133 a month at a time, over twenty years (Remember the twenty-year fixed, anyone?)
That is the power of ownership. But it starts small, like buying a house in a bad neighborhood to get your feet in the real estate market.
Renters, unless they are investing actively and wisely in the stock market, will have nothing to leave to their children. No hedge against rental inflation when their incomes are fixed and limited in old age. Nothing to help pay for their children's or grandchildren's college educations. And it is higher education that positions people, especially people of color, to take up leadership positions in business, government and society in general. To solve social ills.
Like police brutality.
Because if you're not in a position of power, you're not at the table where the decisions are made. And as one of my attorney colleagues once said, "If you're not at the table, you're on the menu."
What black and brown people who swear off home ownership because of their past experiences don't understand is this:
1) A fixed rate mortgage freezes your housing costs over time. As your salary increases, your mortgage doesn't, increasing your disposable income. Rents always go up. If you retire as a renter, your fixed income will always be chipped away by higher rents.
2) Your first home won't be your dream home -- it's your equity building home. As my Latina realtor friend said, "Buy what you can afford, whether it's the best house in the worst neighborhood or the worst house in the best neighborhood. If the neighborhood schools are bad, send your child to a charter school. Live in the house for a while and if you don't like the neighborhood, rent it out and live elsewhere. At least you're building equity."
3) Most people don't invest well enough so that they don't have to buy a house. Although stocks have a higher rate of return on investment over time, real estate tends to be safer, especially if you buy and hold. Shortly after BMNB and I bought our home in 2008, we were $100,000 under water. Now we have a lot of equity because the market has bounced back and houses in our neighborhood aren't staying on the market very long. As I said to BMNB when we were under water on our mortgage, "It's a good thing we like our house, because we're definitely not going anywhere." I'm glad we couldn't.
4) Never, ever buy more than what you can afford, and don't let anyone tell you what you can afford. During the height of the real estate boom, mortgage lenders were willing to finance BMNB and I for more than $1 million. We knew we couldn't afford it. We bought a foreclosure that we could safely afford.
5) If you rent, you are at the mercy of your landlord. BMNB and I have the experience of being on both ends of the landlord/tenant stick. When we were renting in Elk Grove, we received a 60-day notice for no reason other than that the landlord lost one of her houses and wanted to move back into the one we were renting. On the other end, the tenant in our Colorado property is about to get a $200 per month rent increase when the lease expires in August. Why? Because she purposefully jacked up our kitchen countertops and DEMANDED granite countertops to replace the laminate -- WTF? -- and because the market has gone gangbusters and we can easily charge and get $200 a month more to pay off the mortgage faster. THAT is the power of ownership. I would be lying if I said I wasn't enjoying getting revenge on the tenant, especially since all the while I lived there BMNB wouldn't buy me granite countertops, and I was sleeping with him.
6) Get in where you fit, in however you can get in. My sisters went in together to buy a house that neither could have afforded on their own. My niece and nephew-in-law bought in the 'hood until they could trade up to the suburbs. BMNB's first property, now our rental, was a townhome, because that was all he could afford. Be creative. If you can't afford a house, buy a condo or a townhome. If you're handy, buy something you can fix up and put sweat equity into. Our neighbors next door are the second generation to own their house. When their father died, their mother bought a new house and gave the house to them, her sons. However you get in the ownership game, just get in. Heck, start a down payment sou-sou.
7) Home ownership takes sacrifice, but it's worth it. When you're trying to get your credit together and save money for the down payment, you forego things. You shouldn't buy unless you know you're going to stay in the area for at least three years. And once you buy, you need to keep a steady job - even if you don't like it -- so you can keep your mortgage paid. The benefit? The tax write off for mortgage interest (which has saved us a HUGE amount of money); improvement of your credit -- the first thing that credit applications ask after your job is whether you rent or own; stability for your children, because they won't have to leave their friends or school just because the landlord says so. There are credit cards with credit limits that I couldn't dream of getting ten years ago before BMNB and I bought our house that are offered to me like crack. My new relationship to credit card issuers is best summed up by rapper Mike Jones: "First you didn't know me, now you all up on me."
8) Even if you lose your home, you can pick yourself up, dust yourself off, and try again. My parents lost a home before I was born. They rented until the children of one of my mother's friends taunted my siblings, saying, "You ain't got no place to live." That spurred my dad on to take on extra work to get his family back into their own home.
Wealth grows over generations, with each generation making it a little easier for the next generation -- if they are wise -- to get an education and a toehold in American society. Wealth buys freedom.
But you don't accumulate wealth by renting. That is why I fear a growing black and brown renter class.
But my Latina realtor friend is undaunted. She said she continues to work to get her people into homes. She said, "It's a lot of work, getting first-time buyers into a home. It doesn't pay a lot. But boy is it worth it to me."
Showing posts with label home ownership. Show all posts
Showing posts with label home ownership. Show all posts
Home Ownership Is Not "Acting White"
This blog entry is dedicated to Bob "Treebob" Williams, who gave Black Man Not Blogging (BMNB) the gentle nudge to buy his first home. Rest in peace, Bob.
Sadly, there are many characteristics that my people write off as "acting white": Being intelligent, speaking English well, doing well in school, having good credit. But there's one that strikes fear in my heart for the next generation: Home ownership.
The Housing Bubble and the Great Recession resulted in lots of African-Americans losing their homes. Many of us have written off home ownership, thinking of the whole real estate market as being shady (and there's something to that; more on that later) and of home ownership as being beyond our reach and for white folks.
The reason this scares me is that the gains we as African-Americans made in home ownership in the late '90's and early 2000's won't be regained if we as a people simply write off home ownership. Why does it matter? Because a home is the largest intergenerational wealth transfer that most people make. Because home ownership often sets the stage for paying for a child's education. Because home ownership can be part of the portfolio of assets that pay for retirement.
Watching us turn away from home ownership reminds me of an episode of "Sex in the City" when Carrie Bradshaw receives notice that her apartment building is going co-op. She's been given the opportunity to buy her apartment. One would think that Carrie, with her love of Manolos and all things luxe, wouldn't sweat buying her apartment. She does, though, because she can't afford it. So she writes off home ownership until, over lunch with Miranda, Samantha and Charlotte, she discovers that they are all home owners. The vulnerability that Carrie felt -- that she could be out on the street at the whim of her landlord -- was palpable. In the end, Charlotte sells her wedding ring to loan Carrie the down payment on her apartment.
Home buying doesn't normally occur this way for black folks. That doesn't make it any less important.
The reason why I harp on this so much is that I wonder, "What will average African-Americans have to hand down to their children if they don't buy homes?" True, you will, on average, experience a higher rate of return from investing in stocks than in investing in real estate. And I don't consider home ownership to be a true "investment." But home ownership doesn't require the same level of expertise required to pick stocks, and it is highly subsidized by the government because of the mortgage interest deduction, and even more so if you are a veteran and qualify for veterans' home loans. You have to live somewhere -- why not own what you live in?
I'm not concerned about the wealth gap between African-Americans and whites for wealth's sake. I'm concerned about it because wealth means freedom. The more money you have, the more choices you can make about your life -- whether to go to college, where to live, what to do for a living. The ability to transfer wealth between generations is the basis for that economic freedom. Home ownership is part of the wealth transfer.
Yes, the Housing Bubble housing market was shady. Yes, Wells Fargo, Bank of America and other financial institutions conspired to put African-Americans in subprime loans. Yes, we need to be smarter the next time around. But you don't throw out home ownership entirely because you got burned. It's not about you. It's about the generations to come behind you.
Home ownership starts with an intention. The intention leads to a plan -- improving your credit, saving your money, having a stable job. It requires sacrifice -- fewer shoes, fewer Xboxes and flat screen TVs, more savings. And it may require flexibility -- if you live in a high cost area, you might have to buy somewhere more affordable -- like Texas. Instead of a house, you might have to start out with a condo. Instead of new construction, you might have to start with a fixer-upper and watch home improvement shows and how-to videos on YouTube. You might have to buy your house with other relatives, maybe with two or more families. You might have to buy in a not-so-great neighborhood and convert your local school into a charter school. But over time, the appreciation in value that normally occurs with home ownership (Real Estate Bubble notwithstanding) will inure to your benefit and the benefit of your children and their children.
What scares me now is that there are real estate investment firms that are buying up unfinished lots and building new homes solely for the purpose of renting them.
Not selling them. Renting them.
This phenomenon is playing itself out in Atlanta, and it looks like it's targeted toward African-Americans who want to live in a new house and can't afford to buy where they want to live. It's like real estate crack -- once you get that high of living in a brand new home that you rent, you're not willing to make the long-term sacrifice to buy a home that you can actually afford and trade up later. It's like trading off long-term financial benefit for short-term real estate euphoria. And we're falling for this real estate okey-doke yet again.
People, let's not fall for this again. The only thing renting a house does is make the owner of that house richer.
And, for the record, home ownership is not acting white. My parents owned their home. My uncles and aunts owned their homes. My grandparents owned their homes.
Wouldn't it be a shame if the pre-civil rights, "Jim Crow" generation of African-Americans transferred more wealth to us through home ownership than we transfer to the generations following us?
Sadly, there are many characteristics that my people write off as "acting white": Being intelligent, speaking English well, doing well in school, having good credit. But there's one that strikes fear in my heart for the next generation: Home ownership.
The Housing Bubble and the Great Recession resulted in lots of African-Americans losing their homes. Many of us have written off home ownership, thinking of the whole real estate market as being shady (and there's something to that; more on that later) and of home ownership as being beyond our reach and for white folks.
The reason this scares me is that the gains we as African-Americans made in home ownership in the late '90's and early 2000's won't be regained if we as a people simply write off home ownership. Why does it matter? Because a home is the largest intergenerational wealth transfer that most people make. Because home ownership often sets the stage for paying for a child's education. Because home ownership can be part of the portfolio of assets that pay for retirement.
Watching us turn away from home ownership reminds me of an episode of "Sex in the City" when Carrie Bradshaw receives notice that her apartment building is going co-op. She's been given the opportunity to buy her apartment. One would think that Carrie, with her love of Manolos and all things luxe, wouldn't sweat buying her apartment. She does, though, because she can't afford it. So she writes off home ownership until, over lunch with Miranda, Samantha and Charlotte, she discovers that they are all home owners. The vulnerability that Carrie felt -- that she could be out on the street at the whim of her landlord -- was palpable. In the end, Charlotte sells her wedding ring to loan Carrie the down payment on her apartment.
Home buying doesn't normally occur this way for black folks. That doesn't make it any less important.
The reason why I harp on this so much is that I wonder, "What will average African-Americans have to hand down to their children if they don't buy homes?" True, you will, on average, experience a higher rate of return from investing in stocks than in investing in real estate. And I don't consider home ownership to be a true "investment." But home ownership doesn't require the same level of expertise required to pick stocks, and it is highly subsidized by the government because of the mortgage interest deduction, and even more so if you are a veteran and qualify for veterans' home loans. You have to live somewhere -- why not own what you live in?
I'm not concerned about the wealth gap between African-Americans and whites for wealth's sake. I'm concerned about it because wealth means freedom. The more money you have, the more choices you can make about your life -- whether to go to college, where to live, what to do for a living. The ability to transfer wealth between generations is the basis for that economic freedom. Home ownership is part of the wealth transfer.
Yes, the Housing Bubble housing market was shady. Yes, Wells Fargo, Bank of America and other financial institutions conspired to put African-Americans in subprime loans. Yes, we need to be smarter the next time around. But you don't throw out home ownership entirely because you got burned. It's not about you. It's about the generations to come behind you.
Home ownership starts with an intention. The intention leads to a plan -- improving your credit, saving your money, having a stable job. It requires sacrifice -- fewer shoes, fewer Xboxes and flat screen TVs, more savings. And it may require flexibility -- if you live in a high cost area, you might have to buy somewhere more affordable -- like Texas. Instead of a house, you might have to start out with a condo. Instead of new construction, you might have to start with a fixer-upper and watch home improvement shows and how-to videos on YouTube. You might have to buy your house with other relatives, maybe with two or more families. You might have to buy in a not-so-great neighborhood and convert your local school into a charter school. But over time, the appreciation in value that normally occurs with home ownership (Real Estate Bubble notwithstanding) will inure to your benefit and the benefit of your children and their children.
What scares me now is that there are real estate investment firms that are buying up unfinished lots and building new homes solely for the purpose of renting them.
Not selling them. Renting them.
This phenomenon is playing itself out in Atlanta, and it looks like it's targeted toward African-Americans who want to live in a new house and can't afford to buy where they want to live. It's like real estate crack -- once you get that high of living in a brand new home that you rent, you're not willing to make the long-term sacrifice to buy a home that you can actually afford and trade up later. It's like trading off long-term financial benefit for short-term real estate euphoria. And we're falling for this real estate okey-doke yet again.
People, let's not fall for this again. The only thing renting a house does is make the owner of that house richer.
And, for the record, home ownership is not acting white. My parents owned their home. My uncles and aunts owned their homes. My grandparents owned their homes.
Wouldn't it be a shame if the pre-civil rights, "Jim Crow" generation of African-Americans transferred more wealth to us through home ownership than we transfer to the generations following us?
My Family's Revolution: Home Ownership
Well, my family's revolution has come to an end. And a beginning, of sorts. We've discussed family mission statements, credit, budgets, sou-sous, gentle nudges, financial literacy, estate planning and career planning, and entrepreneurship. The last two modules of our series of talks, titled, "Something to Think About," were to address home ownership and educating our children.
While we were cruising our way toward finishing up the modules on home ownership and educating our kids, real life got in the way. A revered elder was stricken with cancer but has not only survived, but thrived with chemo. Another family member faced a life-threatening illness but continues to fight back. God is good, all the time.
Needless to say, we all got a little distracted, and family meetings had to be postponed. We finally finished in August, and I'm going to devote separate blog entries to the home ownership module and the education module. This one is for home ownership.
First things first: Despite the housing market meltdown, I'm still a believer in home ownership. Why?
Because a home is usually the largest asset in the average American's portfolio, and most of us aren't savvy enough to make money off of stocks, bonds, and other investments alone.
Because of the mortgage interest deduction, for however long it lasts. For the life of me I can't understand paying rent for your entire life, getting a paltry renter's credit, if at all, and having nothing to show for all the rent you paid when you retire. I just don't get it.
Because home ownership, done properly, creates stability in your family. I've been on the poopy end of the rental stick, having been given 60 days' notice to move out of our rental solely because the landlord wanted to move back in. As long as I pay my mortgage, I have a place to stay that can't be taken away from me at someone else's whim. This is especially important when you have children.
Mind you, even if you pay off your home, you're not going to make a lot off of it in the long run unless there's another real estate bubble. That said, it is an asset that you can control and, to a certain extent, borrow against for large future expenses should you so choose, which I would not.
Because once you pay it off, you can hand it down to your children. A house is the biggest intergenerational wealth transfer for most average Americans. The ability to hand a house down to your children can, if done wisely, help them to maintain a middle-class lifestyle. Because we African Americans tend to have lower home ownership rates than whites, we tend to hand down less wealth to our children. However, home ownership rates for southern African Americans have usually been higher than for African Americans in other parts of the country.
I did not present the module on home ownership. Mary Assadi, an extraordinary realtor with Keller Williams and a friend of Black Man Not Blogging (BMNB), did. Mary outlined the basic home buying process and help us understand the different kinds of real estate loans you can get. More on that later.
What I did provide was a list of all the things BMNB and I did right and wrong in buying our home. They are:
Resources
Mary Assadi http://maryassadi.com/
Eric Tyson and Ray Brown, "Home Buying Kit for Dummies "
While we were cruising our way toward finishing up the modules on home ownership and educating our kids, real life got in the way. A revered elder was stricken with cancer but has not only survived, but thrived with chemo. Another family member faced a life-threatening illness but continues to fight back. God is good, all the time.
Needless to say, we all got a little distracted, and family meetings had to be postponed. We finally finished in August, and I'm going to devote separate blog entries to the home ownership module and the education module. This one is for home ownership.
First things first: Despite the housing market meltdown, I'm still a believer in home ownership. Why?
Because a home is usually the largest asset in the average American's portfolio, and most of us aren't savvy enough to make money off of stocks, bonds, and other investments alone.
Because of the mortgage interest deduction, for however long it lasts. For the life of me I can't understand paying rent for your entire life, getting a paltry renter's credit, if at all, and having nothing to show for all the rent you paid when you retire. I just don't get it.
Because home ownership, done properly, creates stability in your family. I've been on the poopy end of the rental stick, having been given 60 days' notice to move out of our rental solely because the landlord wanted to move back in. As long as I pay my mortgage, I have a place to stay that can't be taken away from me at someone else's whim. This is especially important when you have children.
Mind you, even if you pay off your home, you're not going to make a lot off of it in the long run unless there's another real estate bubble. That said, it is an asset that you can control and, to a certain extent, borrow against for large future expenses should you so choose, which I would not.
Because once you pay it off, you can hand it down to your children. A house is the biggest intergenerational wealth transfer for most average Americans. The ability to hand a house down to your children can, if done wisely, help them to maintain a middle-class lifestyle. Because we African Americans tend to have lower home ownership rates than whites, we tend to hand down less wealth to our children. However, home ownership rates for southern African Americans have usually been higher than for African Americans in other parts of the country.
I did not present the module on home ownership. Mary Assadi, an extraordinary realtor with Keller Williams and a friend of Black Man Not Blogging (BMNB), did. Mary outlined the basic home buying process and help us understand the different kinds of real estate loans you can get. More on that later.
What I did provide was a list of all the things BMNB and I did right and wrong in buying our home. They are:
1.
Not checking out our realtor. We used our realtor (who was not Mary -- we didn't know Mary was a realtor when we bought) because his mother had
name recognition and expertise in our real estate market. Although we did have access to her through
him, we should have found someone who was more experienced and who listened
more to what we wanted.
2.
Not seeking a mortgage through an independent
mortgage broker. We got our mortgage through Wells Fargo because
1) they did FHA loans; 2) they did CalPERS loans; and 3) BMNB banked with them
(my credit union did not do CalPERS loans). An independent mortgage broker has access to
a variety of loan products; a bank will only sell you what they have to offer,
and they probably won’t keep your loan in their portfolio. In our case, Wells Fargo eventually sold our
loan to Citibank, who later sold it to another bank.
3.
Not being clear on how much we wanted to spend. I wanted to spend more, BMNB wanted to spend
less. The realtor agreed with me, for
obvious reasons. BMNB had to set him
straight. It wasn't pretty.
4.
Buying a home in a new and incomplete neighborhood. We were lured to our relatively new
neighborhood by signs saying “School coming soon” and “Park coming soon.” Well, soon never came, and neither did the
school and the parks. Both the school
district and the city ran out of money.
Never buy in a new neighborhood that isn’t completely built out.
5.
Not checking out the finances of the school district
and the city. We should have never believed the parks and
schools signs and should have read the financial reports for both the city and
the school district to see if they really did have the money to finish the
parks and the schools. They didn't.
6.
Not double-checking the amount that needed to be impounded
for taxes. When you don't put down at least 20% for your house, your lender will require you to pay money in addition to your mortgage each month to cover the twice annual property tax bill, private mortgage insurance bill, and homeowner insurance bill. This additional money is held by the lender, or "impounded," until these bills become due, and the lender pays them. The bank got the amount of our monthly impound wrong, and we had to
play catch-up to pay back the amounts that weren’t impounded.
7.
Not checking on whether the neighbors next door were
renters. Not that all renters are bad – we were
renters, too. When you buy, however, you
don’t want to live next door to a rental house because you never know who your
neighbors are going to be for the long haul.
We specifically asked our realtor to check on this but he didn’t, and we
didn’t follow up. Our next-door
neighbors to the north are renters.
8.
Not checking on future development plans for nearby
neighborhoods. We didn’t know that a new neighborhood was
slated to be constructed near our neighborhood.
The school district doesn’t have the money to build additional schools,
and our neighborhood school is crowded as it is. When the new neighborhood comes on board, our
neighborhood school will be overcrowded and the streets may be gridlocked with
morning commuters.
9.
Not negotiating to have all or part of our
Mello-Roos bond paid. A Mello-Roos bond is a bond that all buyers
of new houses in California are responsible for paying to pay for the neighborhood
infrastructure such as sewers, lighting, etc.
They run from twenty to forty years.
You can negotiate to have the seller pay part or the entire Mello-Roos bond
or to lower the price of the home to compensate for the price of the Mello-Roos
bond. Buyers don’t like to buy houses
with huge Mello-Roos bonds, which will ultimately make our house harder to sell. Yep, we're pretty much sitting on rental property. Thanks, Henry Mello and Mike Roos.
10.
Not checking on where the local utilities are
located in relation to our house.
We knew that the railroad tracks were two blocks behind our home. What we didn’t know was that there’s a
petroleum gas line that runs right alongside the railroad tracks. Think San Bruno.
Here
are the successes BMNB and I had in buying our home:
1.
Using our own inspector. We wanted an inspector who didn’t have an
interest in the outcome, such as someone who was referred to us by our realtor.
2.
Checking out future freeway plans for the
neighborhood. We knew that a freeway bypass was slated to
come through our neighborhood, but we went to the CalTrans office to make sure
the bypass wasn’t going to be too close to our house.
3.
Buying a home that will suit us for the next ten
years. BMNB and I knew we planned to adopt, so we
wanted a home that would be big enough for the family we planned to have, not
the family we had.
4.
Getting a CalPERS loan. CalPERS no longer does home loans, but one of
the requirements of the loan program was to keep fees low.
5.
Buying in a neighborhood with a Home Owners
Association (HOA). A lot of people don’t like living in
neighborhoods with HOA’s because they don’t like all the rules. We like the rules because the rules keep your
neighbors from doing things to their property that brings down the value of
yours, e.g., painting their houses hot pink or parking their cars on the front
yard. It works for us, but it may not be
for everybody.
6.
Buying a foreclosure. Relatively speaking, we got a good deal. The down side? The house continued to lose value. That’s why we had to make sure it was
someplace we’d be happy to stay in for a while.
7.
Checking out the neighborhood at all times of the
day and night before buying. BMNB and I
made trips to our neighborhood during all hours of the day and night to get an idea of
what the neighborhood was really like – the sights and sounds during all hours
of the day – and to see how we would be received.
8.
Buying a house that suited our life style. BMNB and I are homebodies who like suburban
life. We like living someplace that is
quiet, safe, family-oriented, and away from congested cities. We chose our neighborhood because it was
affordable, safe, quiet and family-oriented.
Think about your own lifestyle – e.g., whether you are an urbanite who
likes to walk to the grocery store and ride your bike to work – before you buy
your house.
9. Getting a fixed rate loan. We got an FHA (Federal Housing Administration) 30 year fixed loan, which means that our monthly mortgage payments will be the same for the entire 30 years of the loan. No adjustable rates, no balloon payments, no interest-only loans.
9. Getting a fixed rate loan. We got an FHA (Federal Housing Administration) 30 year fixed loan, which means that our monthly mortgage payments will be the same for the entire 30 years of the loan. No adjustable rates, no balloon payments, no interest-only loans.
Here is A VERY BASIC GUIDE to home buying process as laid out by Mary Assadi with notes added by me. You should definitely consult a realtor and learn more about the process:
1. Initial consultation and market education: This is where you meet with your realtor to discuss what you're looking for and for your realtor to educate you about the real estate market you'll be dealing with. A good realtor tries to find out what you want and what your lifestyle is and then tries to find houses to fit you, not the other way around. And no good realtor should try to talk you into a house you cannot afford. (The old rule of thumb I'd always heard was that your home should not cost more than 2-3 times your gross annual income, but that may not always apply.)
2. Loan prequalification or preapproval: Prequalification is when your banker or mortgage broker reviews your credit, income and assets and determines how large a mortgage they think you would qualify for. Preapproval is when the banker or mortgage broker actually commits to you that you are approved for a certain amount of a mortgage. I would highly suggested getting preapproved instead of prequalified so you don't waste the realtor's time. With preapproval, you can lock in a mortgage rate for a certain number of days to allow you to find a home.
3. Viewing property.
4. Finding a home and submitting an offer. This is where you need to engage and trust your realtor. There can be some strategy to submitting an offer, especially if you are competing with other buyers. Your realtor's experience will be crucial to helping you put in an offer that stands out from all the others.
5. Negotiating terms. Your seller may reject your offer and provide a counteroffer. Negotiating the terms of the offer is an area of expertise for your realtor.
6. Accepted Offer! Yay! Now, the transaction enters three separate tracks that lead to closing, e.g., when you sign the loan documents.
a. Inspections, disclosures, and contingencies:
i. Schedule home inspection and review seller's disclosures of defects or things that need repair.
ii. Have home inspection and, if necessary, request that the seller make repairs before the transaction can go forward.
iii. Remove contingencies, e.g., conditions that need to be met in order for the buyer and/or seller to agree to the sale, such as requests for repair.
b. Escrow and Title
i. Open an escrow account and have earnest money deposited. An escrow account is an account controlled by a neutral third party, typically an escrow or title company, into which money for the sale of the house is deposited and held until all the contingencies are met. Earnest money is money you pay to show that you are serious about the transaction, and it is credited against the total price of the house.
ii. Get a preliminary title report and homeowners insurance information. A title report shows all the times the house has been sold and who bought it. It helps you know that the person who is selling you the house actually owns it. The title report will also reveal if there are any liens against the property. You will want all liens to be paid before closing.
c. Loan application
i. Submit a formal loan application and collect documentation for the loan. You will need bank statements, income tax returns, and all kinds of documents in order to qualify for a mortgage.
ii. Order appraisal; loan package submitted to underwriter. The bank will order an appraisal of the house to make sure it's worth what you're paying for it and worth the mortgage they're going to give you for it. Your loan application, once completed with all the proper documentation, will be sent by your banker or mortgage broker to their underwriting department, who will determine whether you qualify for the loan or if they have additional questions you need to answer in order to get the loan.
iii. Loan approval and responding to conditions: Your mortgage loan may be approved, but with conditions, e.g., explaining where you got your earnest money from, explaining things on your credit report. Once your respond to the underwriter's conditions in a way that satisfies the underwriter, you get your mortgage loan.
7. Sign loan documents at title company and provide a cashier's check for the required closing funds, also called "closing." Your closing costs may include fees related to the cost of escrow, the title search, the inspection, etc. You should get a Good Faith Estimate (GFE) in advance of signing the loan documents so you know how much of your own money you need to have in cashier's check at the time.
8. Lender funds the loan. Once you've signed all the loan documents and paid all the closing costs, the lender pays the amount of the mortgage loan to the buyer.
9. Title is recorded in your name and confirmation is received. Once the lender funds the loan, ownership, or "title," passes from the seller to the buyer by recording "title" with the county assessor. Once title is recorded, the house is officially yours.
10. GET THE KEYS TO YOUR NEW HOME!
Here are some examples of types of mortgage loan programs, courtesy of Mary Assadi:
Conventional Loans
- 20% down payment (no mortgage insurance)
- 3-5% down payment (mortgage insurance w/lower debt to income ratio)
- 3.875 interest rate (as of 5/4/12) for a 30-year fixed
- 3.00% interest rate (as of 5/4/12) for a 15-year fixed
- Impounds optional
- 3.5% down payment (up front and monthly mortgage insurance)
- 3.75% interest rate (as of 5/4/12) for a 30-year fixed.
- Impounds required
- 1 % down payment (upfront and monthly mortgage insurance)
- 3% down payment by CALHFA is a silent second mortgage on home (due upon sale with simple interest)
- Higher credit scores required
- Same interest rate on FHA loan for the first mortgage
- 3% down payment without mortgage insurance
- Only available on Fannie Mae foreclosure properties
- Interest rate usually 1 - 1.5% higher than available FHA rate
Resources
Mary Assadi http://maryassadi.com/
Eric Tyson and Ray Brown, "Home Buying Kit for Dummies "
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