Becoming homeowners was a decision Valerie and Ron Francois made well before they got married in June 1999. Valerie, 34, had grown tired after years of renting in New York and New Jersey, and Ron, 36, was determined to do as his father had done–work hard to raise a family in his own home. The couple made a conscious decision to forego a lavish wedding and instead used their money for the down payment on a $117,000, three-bedroom townhouse in East Windsor, New Jersey. They moved in three months after their nuptials. “You could spend $30,000 or $40,000 on a wedding,” says Valerie. “We wanted to start out as a married couple with something substantial–something we could build on.”
The couple felt strongly that their first home should be the very best house they could afford. They approached the purchase like an investment because they wanted to make sure they would be positioned to trade up to their dream home when the time came. “There was a [good] school nearby. It was near the turnpike, and there was a bus stop that could take you to New York, which was good for commuters,” explains Valerie, a corporate communications executive for Siemens Corp. “All those are things we thought would make it easier to sell when the time came.”
After five years of marriage and with a second child on the way, the couple decided to sell their home and look for a larger place in 2004. That’s when the value of homeownership really became apparent. “When we purchased the first home, we knew we only wanted to stay there for five years,” says Ron. “The plan was to pay our mortgage and save as much cash as we could, and when the opportunity presented itself, we would take the savings and the equity and apply it toward our second home.”
Their East Windsor townhouse sold for $230,000, giving them more than $100,000 in equity to apply toward a four-bedroom, single-family home with a two-car garage that sits on a third of an acre of land in central New Jersey. Ron says their new home, which is right outside of affluent Princeton, appraises for about $500,000. “From an investment standpoint, that’s the direction that we wanted to go,” he says.
Valerie notes: “We couldn’t have bought our second home without building up equity in our first. If we had rented during those first five years of marriage, we would never have been able to save enough money to make that purchase. As we went through the process, we came to understand that [building equity] is what people do.”
When Maria and Cameron Saulsby realized how much money they were wasting to pay for a home they didn’t own, homeownership became a regular topic of conversation in their two-bedroom Orlando, Florida, apartment. “We were just throwing our money away to somebody else while renting,” says Cameron, 27, a marketing associate at Sysco Food Services. “We knew the best way to get out of that was to buy a house.” After spending a few weeks weighing their options, the couple took their first step down the road to homeownership.
Since Maria, 27, had the summer off from her job as a seventh-grade math teacher, she scoured the Orlando area for a neighborhood she and Cameron could raise a family in. They agreed to buy a newly constructed home, and after a week of non-stop searching, Maria found a suitable subdivision. Although the Saulsbys had about $8,000 saved for their down payment, they were able to get their $160,000, three-bedroom home with 100% financing by using the builder’s mortgage lender. On June 30, 2004, the Saulsbys closed on their first home. Shortly after, Maria gave birth to their now 10-month-old daughter, Alaiya.
“I think I looked at our keys from the time we signed our papers until we pulled into the garage,” says Maria. “It wasn’t that I didn’t believe it, but I was just still in shock. I said, ‘We’ve done it, it’s finally done.’ It felt really good.”
The couple has already seen the benefits of homeownership. Cameron estimates that their home has already appreciated about $40,000 in value, giving them equity they plan to use to trade up to a larger home within the next three years. “We definitely made a sound decision,” says Cameron.
Are you ready to join the ranks of those who have become homeowners? If you aren’t sure whether buying a home is right for you, here are six reasons BLACK ENTERPRISE believes it is the right thing to do, right now!
IF YOU CAN PAY RENT, \YOU CAN SWING A MORTGAGE
Many people delay pursuing homeownership because they believe it is more expensive than renting. Yet, the reality is that, in the long run, renting often costs more than owning. Let’s take an automobile, for example. Renting is the right move if you need a car for a brief period of time, say a vacation or business trip. But if you need long-term or permanent access to a car, renting is ridiculously expensive. Even with the cost of maintenance and insurance, it makes more sense to buy a car.
The same is true for your home. If you don’t plan to stay in one place for more than a couple of years, renting may be the best solution. But if you are likely to live in one place for more than six years, it is usually less expensive to own. In fact, the longer you rent, the more expensive it becomes compared to homeownership. And remember, no matter how inexpensive a rental is, you don’t own anything after you pay the rent.
But don’t take our word for it–do the math yourself. There are great online calculators that can help you compare the cost of renting versus buying a home. Start at Mortgage101.com (www.mortgage101.com/Calculators/BuyVsRent.asp). If you’re renting now, make up your mind that it’s temporary–no more than three to five years. Make homeownership your goal and begin preparations now, while you are still renting. Begin saving toward a down payment. Order your credit reports and take steps to boost your credit scores. Start shopping for mortgage rates at Websites such as www.lendingtree.com and www.bankrate.com. Begin to think about the type, size, and location of your first home.
If you make the most of your time as a renter, you’ll be prepared to buy a home long before renting becomes a pricey proposition. If you are realistic about how much home you can afford, your monthly mortgage should be equal to (maybe even less than) the rent you’re paying now.
Look at it this way: If you are renting a home, you are already paying a mortgage–your landlord’s. Isn’t it about time you put your hard-earned money toward a home of your own?
THERE’S A MORTGAGE WITH YOUR NAME ON IT
Perhaps you’ve been putting off looking into a mortgage because you don’t think your credit is good enough, or maybe you haven’t saved enough toward your down payment. Possibly, you’re waiting to get married and you haven’t met your future spouse yet, or you’re waiting until you earn a larger salary.
“A lot of people say, ‘I can’t get a house. I don’t qualify,’ ” says Maria. “Go and talk to someone to see if you do qualify. You’d be surprised at how many people think they can’t qualify for a home and in all actuality, things aren’t as bad as they think.”
There are many types of mortgage products available for people of all income levels. The sooner you start investigating the possibilities, the sooner you’ll discover a mortgage option that might be right for you. The Saulsbys’ solid credit scores helped them benefit from a 100% financing product that they didn’t know they qualified for until they started the home-buying process. But there are loan products for people with less-than-perfect credit, and first-time homebuyer products that allow you to qualify for a mortgage with a down payment as little as 3%. Fannie Mae (www.fanniemae.com) and Freddie Mac (www.freddiemac.com) are great sources of information on such loan programs.
YOU WILL PROTECT YOUR CREDIT
Renting doesn’t pr
ovide a positive incentive for maintaining good credit. However, when it comes to homeownership, you’ll have plenty of motive to establish and maintain good credit.
The rewards of cleaning up and protecting your credit start with the mortgage search, where the best credit scores (better than 700) qualify for the best terms and lowest interest rates, saving you thousands of dollars over the life of the loan. The benefits continue after you buy, as other organizations will approach you with lucrative offers. A good credit score will help you qualify for a home equity line of credit that can be used to consolidate other high-interest debt at lower interest rates. Car insurance rates and credit card rates are also generally lower for people with good credit scores.
YOU AND YOUR TAXES WILL GET SHELTER
Other than business ownership, a home is probably the only tax shelter available to average Americans. Conversely, there are almost no tax benefits to renting. In fact, the few IRS deductions available to renters (such as purchases, equipment, and utilities related to a home-based business) are available to homeowners as well.
However, the deductions available to you as a homeowner are enough to take the dread out of April 15. The biggest and best deduction is the interest paid on your mortgage loan. You can often deduct late payment charges, prepayment penalties, points paid to your mortgage lender (even if the person who sold you your home paid the points on your behalf), and real estate taxes.
We’re talking thousands of dollars in deductions against your tax liability. The tax deductions associated with homeownership are another reason owning is less expensive than renting.
YOU CAN HAVE YOUR INVESTMENT–AND LIVE IN IT, TOO
The only way to derive long-term benefits from renting is to have and hold on to a rent-controlled apartment. The fact is when you stop renting, you simply move out. When you own a home, every mortgage payment you make builds equity–increasing your ownership stake in the property. It’s like money in the bank. In the future, you can tap into your home equity to reduce debts, pay for your children’s education, or buy additional property. When you are ready to move, you can sell the property and use the proceeds of the sale to buy another home–maybe a bigger place in a better neighborhood.
A LEGACY FOR FUTURE GENERATIONS
Even if you decide to never sell your property, there’s an upside to buying a home. If you pay rent, at the end of 30 years, you’ll own nothing. If you pay a mortgage for 30 years, you’ll own an asset that serves as the foundation of wealth for yourself and your family for years to come.
Your home is an asset you can pass on to your children. Unlike rental space, the equity in your home belongs to you. Your home can be included in your will and other parts of your estate plan.
Bottom line: BLACK ENTERPRISE wants you to get on the path of homeownership today. Stop procrastinating! Stop the excuses! The final reason you should consider homeownership now–a BE reader will win $10,000 toward the down payment on their first home (see “Own Your First Home Contest” sidebar).
“I think the key to wealth building is homeownership, but I don’t think that we as African Americans understand that,” says Cameron. “Once we get to the point where we realize what owning a piece of property can do for us, I think it will allow us to advance as a people much faster.”
OWN YOUR FIRST HOME CONTEST
Our latest venture will make one of our reader’s dreams a reality
When we updated our Declaration of Financial Empowerment in January 2004, perhaps the most significant change was our decision to highlight the wealth-building benefits of homeownership. Not only did we make the tenet to use homeownership to build wealth one of the newly structured 10 principles of DOFE, but we listed it as our No. 1 principle.
Now we’re going to help one of our lucky readers through the BLACK ENTERPRISE Own Your First Home Contest. From July 21 to Sept. 1, readers can log on to blackenterprise.com to apply for a chance to win $10,000 toward a home and be featured in BE. The contest is limited to first-time home buyers who meet the credit requirements to qualify for a mortgage.
Why are we so committed to homeownership? Studies show that individuals who own homes have a significantly higher net worth than those who do not. And homeownership breeds an “ownership mentality,” which is critical to building wealth. There are also a number of tax breaks that benefit homeowners, and the equity in your home can help you leverage other wealth-building opportunities such as financing a business or paying for higher education. And perhaps most importantly, a home can be passed on, giving future generations a head start on wealth building.
“With housing prices skyrocketing, it’s essential that African Americans take the step toward homeownership now,” says Personal Finance Editor Matthew S. Scott. “Buying a home is becoming more and more expensive every day. We hope that by assisting our readers with this $10,000 gift, it will send the message that this is something anyone can achieve. If you’re not ready this year, start by fixing your credit and saving small amounts toward your down payment. If you want to build lasting wealth, homeownership is a necessity.”
For complete contest rules, go to blackenterprise.com today. –The Editors