An overview of the trials and tribulations of becoming a homeowner in one thousand words or less. That is the goal for this month’s article. I received a number of requests for a nice one-page overview of the past year of this series and this article will attempt to provide you with just that.

The purpose of the “Owning a Home” series is to demystify the home buying process and to help actors and artists make the most of that rent money they’re spending every month. Buying a home comes down to three questions: Should I own? Can I own? How do I own?

Should I Own?

Is owning that much better than renting? My answer to you is a resounding yes, but let’s take a quick look at both sides of the argument. There are some advantages to renting:

Your monthly expenses are set. If your sink leaks, you call the landlord.

You don’t have to be particularly nice to the place, because it’s not yours. If you scratch the floor, you throw a rug on it.

When your lease is up, you can leave. In a year, you can pack it up and live somewhere else, if you like.

Those are really the only advantages I can muster, and they tend to be a bit overrated:

1. While your monthly expenses as a renter are set, you’ll find that it’s a similar situation as an owner. Without a doubt, owning a home is a responsibility that will cost you time, money and effort. However, if you buy a quality property, and you are prepared to cover the occasional refrigerator repair or special assessment from your condo association, you will find that your expenses remain relatively stable.

2. While it’s nice not having to worry about taking care of your place, it’s generally much more rewarding to have a residence that you love and that you benefit from improving.

3. As for that final advantage, the truth is that as a homeowner, you can move out at any time. You can sell, or you can rent the place out to cover your expenses—or possibly profit a bit.

Let’s look at some of the advantages of being a homeowner.

You’ve heard it a million times before but I’ll say it again because it’s true: When you rent, you are paying someone else’s mortgage. Why not just pay your own? When I bought my condo, I wasn’t in great financial shape, I wasn’t looking to settle down or start a family or anything like that. I simply couldn’t justify throwing all that money away every month.

Real estate is a solid investment, a much more reliable investment than any stocks or bonds or anything else you hear about from your friends or CNBC. Legendary investor Peter Lynch puts it best in his book, One Up on Wall Street, “As they might say on Wall Street, ‘A house, what a deal!’ Before you invest anything in stocks, you ought to consider buying a house, since a house, after all, is the one good investment that almost everyone manages to make.”

You have greater security as a homeowner, in a number of ways. As a renter, if a landlord sells the building or prefers to rent to someone else, you can be forced to move. Also, as an owner, you can control your environment. You are not at the whim of a landlord if you want to strip the lavender paint off the woodwork or replace the olive green toilet.

There are a number of financial benefits to owning a home. You are increasing your net worth, building equity and gaining several tax benefits as a homeowner!

Can I own?

The toughest question of the three. Whether or not a person is able to secure a mortgage relies on a few major factors: credit score, down payment, and debt-to-income ratio.

As you know, a strong credit score can help you tremendously in securing a mortgage. However, there are several programs available to you as a home buyer if your credit rating is not-so-great or, for lack of a better term, bad. These financing options sometimes come with a higher interest rate, though you may be able to overcome that rate increase with a solid down payment. The most surefire way to repair or improve your credit score is to keep all credit and utilities payments “clean” (i.e. on time) for at least 12 months.

People often hold off on buying a home because they want to wait until they have enough money saved up to make a large down payment. In the meantime, they are wasting hundreds if not thousands of dollars each month on those rent payments and further depleting their finances. There are several mortgage options available that do not require a down payment and will accept a below average credit score. Meanwhile, it may be possible to negotiate an offer for a home that requires the owner to pay some or all of your settlement expenses, thereby lowering your upfront costs.

Debt-to-income ratio (DTI) is exactly what its name suggests—the amount of money you owe each month divided by the amount of money you earn. In general, lenders want your DTI to be no higher than 38 percent, but they have much more flexibility if you have a great credit score, a sizable down payment or both. You can also bring in a co-signer, such as your parents or other family member that wants you to stop burning that rent money, to help lower your overall debt-to-income ratio.

How do I own?

Once you decide you would like to buy a home, there are five major steps in the process: qualify for a mortgage, find a property, negotiate a sales contract, have the unit inspected, and close on the property. What is most important here is not to try and tackle the entire process on your own. Take the time to find a realtor, mortgage consultant, real estate attorney and property inspector you trust and the entire home buying process becomes much easier, and even a little bit enjoyable. Yes, it will always be a bit frightening, but with a solid team around you, it will be enjoyable, I promise.

There is plenty of information on each of these topics and more in the “Owning a Home” archives at performink.com. Coming in 2006, we’ll begin with a search for affordable real estate in the (nearby) suburbs, we’ll return to the Artists’ Housing Expo and much, much more! As always, feel free to call or e-mail me anytime with any home buying questions you may have. Also, please send me any comments or suggestions about this article and let me know if there are topics you would like to see discussed. Have a great holiday season!

Mike McNamara has been an actor in Chicago for the past eight 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.

Home

Owning a Home Archives