12-24-04
BY MIKE McNAMARA
I’m not making much money.
I have some debt.
I can’t own a car let alone a home.
That was what I was telling myself the first five years I lived in Chicago. Then I decided to do some research and see if the above statements were true. Three months later, I moved into my condo.
We often think that because we aren’t making truckloads of money, or because we’re not salaried, or because we don’t have $20,000 sitting in our checking account, we are unable to own. It’s simply not true.
Without a doubt, the largest obstacle to buying a home is the dreaded down payment. Case in point: an actor/director/friend in town was looking to buy a home with his fiancé. He eventually decided to hold off and continue renting because he wanted to save up at least $10,000 to put down on a property first. That was over a year ago. In the meantime, he has probably spent at least $10,000 on rent. It’s an endless cycle.
So what’s the solution? This article will take a look at some ways to become a homeowner without having a whole lot of money saved up. There are numerous financing options that have become very popular in recent years, and there are local programs designed to help folks with low-to-moderate incomes become homeowners.
100 Percent Financing
This relatively new program is at the heart of the solution. It means exactly what it says: You will be funding 100 percent of your home purchase through a mortgage, i.e. you will not be making any down payment. Also known as zero down loans, 100 percent financing caters to those borrowers who would prefer to not have to put down any money, whether they are able to or not.
So you would figure you’re going to get a really lousy rate since you’re not making any down payment, right? In actuality, with these programs, a borrower with a good credit history can often get rates similar to those that correspond with conventional loan programs.
But let’s say you have less-than-perfect credit, and you don’t have consistent income. Will your rate be a bit higher than most? More than likely, but here is the solution for that situation. You take the higher rate initially. Over the next year, as your property appreciates, you will build equity in that property, and you can turn that equity into a lower rate mortgage. (Equity is the homeowner’s financial interest in a property. It is calculated by subtracting the amount still owed on the mortgage loan from the fair market value of the property).
For example, let’s say you buy a place via 100 percent financing for $150,000. Your mortgage at this point is $150,000. After being a homeowner for a little more than a year, similar properties in your neighborhood are selling for around $159,000, and your mortgage, after paying down a small amount of principal through your monthly payments, is at $149,000. So now you have $159,000-$149,000 = $10,000 of equity in your property.
Remember our fellow actor I mentioned earlier that spent a year trying to save up $10,000 for a down payment? You now have that $10,000 and you own a home! Now you are able to refinance your loan into a better rate, you’ve made money by investing hardly any of your own, and you’re not wasting money on rent anymore. It works. I’ve done it myself!
Those infomercials airing at 3 a.m. talking about buying real estate without spending any of your own money are not that far off. Now are you going to make $250,000 in six months or anything like that? Of course not, but that’s not what we’re trying to do here. We’re trying to find ways to stop paying rent when that money could be going toward your own home and your future.
More Ideas
Here are some other ideas that might be of service to you:
Neighborhood Gold is a down payment assistance company providing free grant money to help you purchase a home with no money down. Ask your mortgage consultant about this program, or you can also visit www.neighborhoodgold.com for more information. As always, feel free to contact me with any questions or comments as well.
The Chicago Partnership for Affordable Neighborhoods (CPAN) is a terrific program I uncovered while working with a client who happened to work for the alderman in my ward. According to its brochure, “CPAN, a partnership between the City of Chicago and developers, is a tool to ensure opportunities for affordable condominiums and single family homes in market rate developments, particularly in appreciating neighborhoods, through two steps: a developer write-down and possible purchase price assistance to homebuyers.” Basically, a small percentage of units in new developments are offered to low-to-moderate income Chicagoans at sub-market prices. I have whole packets of information on this program; let me know if you would like to learn more about CPAN.
Finally, your realtor can also be of assistance in overcoming the financial obstacles to buying a home. He or she can negotiate with the seller to cover your closing costs, which include taxes, appraisal and processing fees and generally total a minimum of $2,500. We will go into more detail about what your realtor can do for you in next month’s article.
There you have it! There are many programs our there to help actors and artists become homeowners and I hope this brief overview encourages you to pursue them. Next month, we’ll discuss the realtor-buyer relationship. Is it worth having a realtor? What can you expect from him/her? How do you get what you want? In the meantime, if you have any questions, even if you already are a homeowner, feel free to call or e-mail me anytime. As always, please send me any comments or suggestions about this article, and let me know if there are topics you would like to see discussed.
Mike McNamara has been a working actor in Chicago for the past six years, in theatre, commercials, television and film. Mike is also a mortgage consultant and loan originator with West America Mortgage Company. He can be reached anytime at 773/398-0021 or McNamara310@aol.com.