Instead of Pouring Rent Money Down the Drain, Why Not Buy the Drain?

(ARA) – Do you ever feel like there are insurmountable barriers to homeownership? Have you been saving for a down payment for years, without making much headway? If you answered "yes", you're in good company. It is estimated that roughly 32 percent of the U.S. population are not homeowners, even though financial advisors and other experts agree that investing in a home is almost always a good idea. Instead of paying rent, homeowners are building equity and there are often significant tax benefits; they're gaining long- and short-term financial benefits. "Homeownership can be a lot easier than people think", says Lori Vella, senior vice president of retail lending for the Home Loans Group at Washington Mutual, a leading retailer of financial services. "There are a lot of great home loan programs available and we're committed to making the dream of homeownership a reality."

Down Payments are Less Important Today

In today's mortgage world, it is no longer necessary to have a significant down payment. There are many home loan programs that require only 1-to-5 percent of the down payment to come from the borrower's own funds. Some home loan products do not require a down payment at all. "It's important that potential homebuyers speak to a loan consultant to help them determine how much "house" they'll qualify for, what loan product would best serve their individual financial situation and help them decide when the time is right for them to buy", says Vella. "Sometimes it's not in your best interest to save for a down payment, for example. While you're slowly squirreling away your money, property values and mortgage rates can be climbing, making it more difficult to buy a home." How much you should contribute for a down payment depends on what you're trying to accomplish. While a 20 percent down payment will mean that you don't have to pay private mortgage insurance, saving that amount can sometimes be a challenge. In addition to low or zero down payment loans, there are nonprofit organizations in most areas dedicated to affordable housing that offer down payment assistance programs. In the early 1990s federal housing laws were changed to allow these nonprofits to help low-income families fund down payments, closing costs and other upfront cash requirements.

Alternative Credit History Considered

Traditionally, banks and other financial institutions in the home loans business used the FICO (Fair, Isaac and Company) system to help determine a person's qualification for a loan. A FICO score is a computer generated "grade" that helps a lender determine a risk level based on a borrower's past credit behavior. The dedicated use of FICO scoring presented a barrier to homeownership for those who did not have a traditional credit history in the United States, such as immigrants.

Changing to meet the needs of emerging markets, some companies have found ways to establish an alternative credit estimation for borrowers who do not have a traditional credit history.

"The Community Access program allows us to build an alternative credit history -- by looking at things like their history of paying rent, utility bills, mobile phone bills -- and allows us to personalize home loans to meet the unique financial situation of each customer", says Vella. The Washington Mutual Community Access home loans program was designed with specific features to meet the needs of the nation's low- to moderate-income borrowers and to help relieve some of the barriers to homeownership by allowing alternative credit, cash income, low down payments and no required cash reserves. The program has proven to be a success with more than $486 million in Washington Mutual Community Access loan originations during the first nine months of 2002, more than half of which went to minority borrowers.

This kind of product innovation is increasingly more important. According to the Mortgage Bankers Association, immigration will add as many as four million households to the U.S. market over the next 15 years and will be among the top three drivers of growth in homeownership.

Education and Information is Key

"Potential homebuyers need as much information as possible prior to buying a home," says Lori Gay, president of the Los Angeles Neighborhood Housing Services. "We encourage every individual or family to consider attending homebuyer education workshops in their local area." Home buyer seminars are offered by most mortgage lenders and by various community organizations. These seminars are conducted in communities throughout the United States in multiple languages and can help you understand the home buying process with detailed information that is useful to have before applying for a home loan.

Gay adds that education helps insure that families receive the proper financial information needed to apply for the right loan, buy a property they can afford, improve their credit history so that they can get a better interest rate, and truly build the long term wealth potential for their family. "Buying a home is not like purchasing a hamburger, it's the biggest expense most families will incur during their lifetime -- make sure you're doing it right," says Gay.

In addition to home buyer seminars, a loan consultant can help you develop a homeownership plan by analyzing your income, debt, available cash, credit history and available loan products to determine what you need to do to be financially prepared, to know how much you can afford, and to determine how much you will use for the down payment.

"There's nothing like having your own place to call home", says Vella.

Courtesy of ARA

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