Like many young people, Pamela Jowers dreamed of one day getting married and buying a home with her future husband. But the 31-year-old, who lives in Moody, Alabama, decided that she didn’t need a ceremony to make her dream come true. She obtained a master’s degree, a new job, and, about a year later, realized her dream of homeownership.
“At this point in my life, I feel like I’m really grown,” says Jowers with sincerity. “I think I’ve reached a different stage in my life spiritually, and once my accountant told me that I had only two options to get a tax break–buy a house or have a baby–I told her I only had one option.”
Although about 40% of first-time home buyers are single, single women purchase a whopping 22% of all homes, while single men account for 9%, according to the National Association of Realtors. Single or married, African Americans are keeping pace with their minority counterparts on the home-buying front: The homeownership rate for African American households during the fourth quarter of 2006 was 48.2%, while Hispanic households were at 49.5%.
The benefits to homeownership are tremendous. “Homeownership is important for two reasons: The equity in our home is the single, largest asset, so we champion homeownership as the foundation of wealth for African Americans,” says Alfred A. Edmond Jr., editor-in-chief of BLACK ENTERPRISE. “The second reason is that having an ownership stake encourages homeowners to make sound financial decisions in other areas such as investing, credit management, and retirement planning.” That’s why the No. 1 Declaration of Financial Empowerment principle is: I will use homeownership as a foundation for building wealth.
For Jowers and others who entered the BLACK ENTERPRISE Own Your First Home Contest last year, the benefits, such as building equity and having a place to call your own, far outweigh the bumps and bruises along the way. “When I encountered some problems, people would tell me, ‘Oh, I had my husband take care of that.” Since that wasn’t an option, she researched, and researched some more. “Even with doing lots of research, there were still things I didn’t know,” she says.
With the 2007 homeownership contest fast approaching (see sidebar, “Stop Dreaming and Start Owning”), here are 10 things you need to know before you start to buy a home.
1. Double-check your credit. Get a free credit report from www.annualcreditreport.com. If you find erroneous data, contact the three major credit bureaus: Experian (www.experian.com), Equifax (www.equifax.com), and TransUnion (www.transunion.com) to file a dispute. By law, these agencies have 30 days to dispute inaccurate or incomplete information and respond or it must be removed from your credit report. If there are past bills owed, try to negotiate a settlement amount starting at 50% of the total. Kina Lane, a licensed real estate salesperson and owner of Sunflower Development Partners, a boutique commercial real estate development company in New York, says to position yourself to qualify for a mortgage by having strong credit, a stable income, and a good debt-to-income ratio. Raise your credit score by making payments on time, keeping credit card balances below 30% of the available balance, and keeping unused accounts open.
2. Determine your true income. Calculate the total income for you and your co-purchaser, if applicable. This includes you monthly income, including investments or alimony. Then list all your monthly expenses such as a car note and insurance premiums, utility bills, childcare, and even groceries. Finally, include credit card payments, personal loans, and other monthly obligations. Next, subtract your expenses from your income. Use Bankrate.com’s mortgage calculators to determine how much house you can afford. The result is an estimate of what income is available toward repaying a mortgage.
3. Get preapproved before you go looking for a home.
One of the biggest mistakes that first-time home buyers make is finding a home they love but not knowing if they can afford it. You can receive a preapproval letter from any mortgage lender, even online ones. Just be prepared to provide the lender with documentation about your assets and income, and let them run your credit report. Otherwise, the most you’ll be able to get is a prequalifying letter, which is meaningless to most home sellers and real estate agents.4. Put together a team of professionals. Whenever possible, use referrals from people you trust to help you locate a realtor, real estate attorney, lender, title company, home inspector, and appraiser. You can call your local chapter of the National Association of Realtors (www.realtor.org). Also, check with your local real estate association to see if any complaints have been filed against those you are considering. “Find someone you can trust. Even with referrals, you need to listen and see if the person has your best interest at heart,” advises Helen Flowers, winner of our 2006 Own Your First Home Contest. “Find your own team of professionals that are not connected to a builder, a seller, or a real estate agent. And don’t always go with the cheapest service, because this decision will last for years and the costs are significant.”
5. Study the market. Begin your research early. Review neighborhoods, types of homes, crime rates, transportation, infrastructure, price ranges, and school rankings at SchoolMatters.com or GreatsSchools.net. A good school district will help increase the value of your home. Sites like www.property shark.com and www.zillow.com offer property tax information, estimates on values of neighborhoods, the last sale price of a home, tax assessments, and even an aerial view of a property. Also, interview several realtors in the area and don’t be afraid to stake out ideal locations, speak to the neighbors, and attend zoning and planning meetings.
6. Determine the right mortgage for you. A 30-year fixed-rate mortgage is the most common and the safest. However, lenders do offer adjustable-rate mortgages that will have a lower interest rate initially but can jump several percentage points, in effect changing your monthly payment by several hundred dollars. Steven Limehouse, a 28-year-old who closed on his Summerville, South Carolina, home in April, found the rate of an ARM attractive but opted for a 30-year fixed rate mortgage at 6% interest to avoid of the uncertainty of monthly ARM payments. Many homes are currently in foreclosure because the owners took on an ARM at the height of the housing boom in the early 2000s but couldn’t keep up with the higher payments once their rate went up a few years later.
There are so many programs out there, including interest-only loans, fixed- and adjustable-rate mortgages, even 100% financing. To avoid predatory lending, ask lenders and brokers about (1) the interest rate; (2) the length of the loan; (3) the type of mortgage; (4) prepayment penalties (do not agree to these, no matter what); and (5) the total amount of the mortgage and monthly payments. A great place to compare local rates is www.mortgage-calc.com, where you can find current mortgage interest rates and calculate first-time mortgage options.
7. Locate first-time home buyer programs. If you need mortgage help, instead of opting for an ARM, seek assistance from first-time buyer programs or government agencies. Try nonprofit organizations such as the American Dream Down Payment Assistance (www.americandreamdownpaymentas sistance.com), the Nehemiah Program (www.getdownpay ment.com), and American Family Funds (americanfamily funds.com). For more assistance, check out www.GinnieMae.gov and www.FannieMae.gov. Also, look for regional first-time home buyer programs and visit www.hud.gov for a complete list of approved housing counseling agencies.
8. Use a home inspector. Your home will probably be the most expensive purchase you’ll ever make. Don’t take the seller’s
word about the quality of the structure and don’t rely simply on an appraisal from your insurance company. Hire your own home inspector, who has no ties to the home. He will be working for you to make sure that you are making a sound decision based on the structural integrity of the home.
9. Be prepared for closing. There are a lot of documents to sign, so have a lawyer who will take the time to explain the forms and the various fees, such as origination fees, attorney’s fees, inspection, survey, etc. Approximately one month prior to the closing date, send a query to everyone on your team confirming the exact closing date and asking if you or anyone on the team needs to submit any additional paperwork. Often, the bank may not inform the closing attorney until the last minute about the closing date, so it’s important that you keep the process moving and get all of your questions answered. Also, do a walk-through of your home before signing on the dotted line. You want to check to make sure everything is in order as agreed.
10. Save. Save. Save. Save at least three months’ worth of payment, interest, taxes, and insurance (PITI) before you buy. It is important to remember, however, that the costs of buying a home include more than just PITI. Figure into your budget cash reserves for moving, emergencies, unforeseen repairs, association dues, maintenance, and upgrades. In addition, closing costs are typically 3% to 5% of the the purchase price. And usually you’ll need a down payment of 5% to 20%. It takes alot of time, preparation and determination to buy a home, but it’s well worth it. For more information on the homeownership process, see our series in the March through July 2006 issues of BE and log on to blackenterprise.com. BE