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In some U.S. markets, it's better to own than rent

(The Atlanta Post) Should you buy or should you rent? It’s a question most people ask themselves at some point in their lives.  Although most people think renting is a waste of money, it really depends on which city you live in. The real estate site Trulia recently released a report on 50 major cities, assessing which ones made more sense for renters and which ones made the most sense for buyers. Although 36 cities fell on the buy side of the equation, 10 were determined as being cheaper to rent.

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If you, like Shumate, plan to make a big purchase in the near future, it’s important to understand all the factors that affect your credit score. You also need to be able to separate fact from fiction. Below are a few common myths about credit and debt management.

Myth: If you have a good credit score, you don’t have to pay attention to what’s in your credit report.
Reality: Read and understand what’s in your credit report. A mistake could cost you the best rate on a loan or cause you to be denied. It could also make you a target for identity theft. Look at the accounts carefully and make sure they’re yours,” says Liz Weston, personal finance columnist for MSN Money and author of Your Credit Score, Your Money & What’s at Stake: How to Improve the 3-Digit Number That Shapes Your Financial Future (FT Press; $18.99). If you see an account that is not yours, dispute it. “Ask for validation to prove the debt is yours. If they can’t prove it, they have to remove it. If you’re ignored, see a lawyer with knowledge of credit card laws,” says Weston.

Myth: Credit inquiries will ruin your score.
Reality: “Credit inquiries don’t matter as much as rumored,” says Weston. “Your score is impacted by about five points, but then it fades quickly in a few months.” A “hard inquiry,” which remains on your credit report for two years, occurs when you apply for credit or a car loan or open a bank account. A hard inquiry will lower your score, but only for the first year that it’s on your report. A “soft inquiry” occurs when you yourself, a prospective employer, or a lender with whom you have an existing relationship checks your credit report.

Myth: Bankruptcy will solve all your credit problems.
Reality: “Bankruptcy is the single worst thing you can do to your credit, so call [creditors] about a solution first,” says Weston. Chapter 7 bankruptcy remains on your report for 10 years and Chapter 13 for seven years. Your credit score can drop by as much as 300 points.

Myth: You’re safe as long as you pay the minimum.
Reality: Credit utilization is important. FICO credit scores look at balances reported and available credit. The higher one’s percentage of credit used, the more damage it does to his or her score. “Paying the minimum may put you in good stead with the credit card company, but there’s still an unpaid balance over time, which affects your score,” says Barry Paperno, consumer operations manager for myFICO.com. Experts advise using as low a percentage of your available credit as possible, but the ideal percentage is below 10%.

This week Michael J. Abel, director for New York’s Housing Preservation and Development department (HPD); Florence Bartholomew from HSBC Bank; and Gita Hecht from the IRS talked about available grants and tax credits for first time homebuyers at the Bedford Central Community Development Corp. homebuyers seminar.

Abel’s program provides first time homebuyers with up to 6% of the purchase price of the home toward the down payment or closing costs on a new home. Most states have a housing and community development department. Check your state’s official website for your local housing office; also search for available homebuyer grants. Another helpful free money resource is Grants.gov and the U.S. Department of Housing and Urban Development (HUD). For resources specific to your state click on “state info” found on HUD’s homepage. HUD also offers the American Dream Down Payment Initiative, which provides up to $10,000 or 6% of the purchase price of the home, whichever is greater.

If you’re a New York resident, HPD should be on your list of programs to tap into. It provides first-time home buyers with a forgivable loan that turns into a grant after 10 years. Don’t be turned off by the loan part. Keep reading. The money only has to be paid back if you don’t stay in the home for 10 years. If you stay, it’s free cash! The program requires you to complete a homebuyer’s education course, and you must have your own savings to contribute to the down payment. Participants must also meet household size and income requirements.

Some banks provide home buying assistance through matched savings programs. The First Home Club at HSBC allows qualified first-time home buyers to earn $4 in grant monies for every $1 saved over a 10- to 24-month period. Bartholomew said potential homeowners can obtain a maximum grant of $7,500 by opening an account at HSBC Bank and making regular monthly deposits. At the conclusion of the program the funds can go towards the down payment or closing costs. This program is available to residents in New York and New Jersey.

If you’re not in these areas, an IDA (Individual Development Account) might be an option for you. I called Rochelle Watson, senior program manager for CFED (Corporation for Enterprise Development) to find out about the benefits of IDAs.

“They’re a good way for low and moderate income families to save towards the purchase of a home, post-secondary education, or to start or expand a small business,” said Watson.

IDAs are set up through nonprofit agencies. The government provides these agencies with grant money each year and the agency fundraises for additional monies. To apply and find out more information about IDAs contact your local office by using CFED’s directory. The program limits the number of applicants it can enroll each year. Call and ask if they are currently accepting account holders. Unlike HSBC’s program, there is no grant at the end but depending on the IDA you apply for, you can get as much as $4 matched for every $1 you save.

These funds can be used in combination with other programs and funding sources, like the first time homebuyer tax credit, which has recently been extended. Under the new legislation, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010, and close on the home by June 30, 2010. Taxpayers can claim the credit by filling out a 5405 form on either their 2009 or 2010 return.

The tax credit is a great reward for buying a home, but you can also get repaid for being energy conscious. Hecht explained that new and existing homeowners can file for the Nonbusiness Energy Property Credit by filling out Form 5695 . This tax credit is for making energy efficient improvements to homes, such as adding insulation materials, energy-efficient exterior windows, high efficiency heat pumps, and air conditioning systems.

There is also a second tax credit designed to spur investment in alternative energy equipment. The Residential Efficiency Property Credit applies to improvements such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit. Check the manufacturer’s tax credit certification statement to make sure it qualifies before purchasing or installing any of these improvements. These services must be installed after December 31, 2008 and before January 1, 2011. You must claim the credit on the tax return of the year that the improvements are made. You can also use Form 5695 to receive these credits.

You should plan to spend a few hours each day researching how many grants and tax incentives you qualify for. As you can see, there is plenty out there. Your hard research will pay off in the end.

Next week we’ll move into the second half of the class: Repairing and Building Your Credit with a focus on money attitudes and budgeting. Follow me at www.twitter.com/LaToyaReports for daily updates.

Other posts in The Homebuyers Toolkit series:

Getting Started

Qualifying For A Mortgage

Key Players

Money Attitudes and Budgeting

Building Financial Security

How Your Credit Score Adds Up

Renting vs. Buying

LaToya M. Smith is an editorial assistant at Black Enterprise