Each week, "Smart Moves," by Ellen James Martin,
provides the practical real estate and housing information
consumers need - and presents it in a straightforward,
down-to-earth manner that is easy to understand. With
its lively, well-written prose, "Smart Moves"
proves useful to anyone who buys, sells, owns or rents
MYTHS THAT KEEP RENTERS FROM BUYING A HOME
months ago, Robert Irwin dined at a patio restaurant with
two friends in their late 20s who listed the reasons they
believed homeownership was out of their reach. For example,
the couple assumed their $10,000 in cash was too meager
a sum to buy their own abode. They were also convinced
that their middle-income salaries -- he's an industrial
engineer and she's a medical technician -- wouldn't stretch
to cover the payments.
the author of real estate books, tried to counter their
arguments one by one. He went home feeling that his efforts
to persuade had fallen flat.
the other day the couple called. Excitedly, they said
they had just moved from their rented townhouse to a detached,
four-bedroom home. They credited Irwin with shattering
their illusions about what it takes to buy a residence.
"My friends were thrilled that their 'impossible
dream' had come true," he recalls.
fallacies keep too many renters from making the leap to
homeownership. "After people have rented for a while,
they develop a mindset. Inertia sets in. They're uncomfortable
with change -- like some older people using a computer
for the first time," says Sandra Sanders, who owns
six Re/Max Realty offices and co-owns a mortgage company
with Chase Manhattan Corp.
common myths keep renters from progressing into homeownership.
Here are five:
1: Mortgage lenders are there to say "no."
are intimidated by lenders. Tradition has it that you
go hat in hand, begging for money. That's totally erroneous
today," Irwin says.
truth is that loan representatives are compensated, much
as salespeople are, on the number of deals that go through.
They have strong incentives to find a way to fit you into
a mortgage even if you have blemished credit or an atypical
employment history. "You can deal with a lender as
an equal because it's a business proposition both ways.
You're there to get a mortgage loan and the lender is
there to make a profit," Irwin says.
2: You need a treasure chest of cash to buy a property.
who has sold homes since 1973, says lenders become more
lenient on down-payment requirements with each passing
year. "It shocks me," Sanders says, "but
people can now buy with 5 percent or less down. Under
the right circumstances, they can even buy with no money
the American economy still thriving, "banks are feeling
good about themselves," Sanders says. "They're
lenient on down payments because they assume homes will
appreciate and they won't have a problem if they have
3: You can afford no more in a house payment than
they've applied for a home loan, many prospective home
buyers realize they can afford 20 percent to 30 percent
more than they expected. What accounts for the disparity?
Often renters fail to take into account that interest
on their mortgage is tax deductible, effectively reducing
their monthly payment.
routinely profile mortgage applicants relative to their
payment capacity. "The lender knows you better financially
than you know yourself," Irwin says.
4: If one lender turns you down, they all will.
has a grown son who makes a healthy income as a self-employed
real estate agent and investor. Yet not long ago, an unseasoned
mortgage lender declined his application, solely on the
basis that he was self-employed. Undaunted, he applied
to a second lender and was immediately approved.
you're turned down, don't assume it's all over. Instead,
find some smarter people to help you out," Sanders
says. Very few credit blemishes block you from buying
a house. "Even those who have gone through a bankruptcy
or a foreclosure can get a mortgage within two to three
years if they have a good explanation and have re-established
good credit," observes Irwin.
5: Renting always gives you more flexibility than
the typical lease runs one year. After that, you can easily
pick up and move to a faraway state without the complications
of selling or renting a home. But there are other complexities
associated with renting.
is payment instability. If you buy a home with a classic
fixed-rate mortgage, your principal and interest payments
should remain constant. Usually only your lesser charges
-- such as property taxes, insurance and condo or homeowners'
association fees -- are subject to upward adjustments.
But renters are often vulnerable to unpredictable rent
increases when a lease comes up for renewal. And if they
live in a community where rental units are in short supply,
those hikes could be substantial.
a homeowner could well have more stability than a renter.
"With a house, you can presumably live there as long
as you want. You don't have to worry about getting kicked
out as long as you make the payments," Irwin says.
the other hand, "the freedom associated with renting
is somewhat illusory," he stresses. A renter could
have to move on relatively short notice should his or
her landlord decide to sell the property.