We also profile four home owners who have used real estate to begin building their own portfolios of wealth and power.
When you buy a home, you typically take out a mortgage loan to finance the purchase. Think of rent as the money you give landlords to pay their mortgage or to stop foreclosures. Company credit unions and many companies have credit unions that offer their employees discounts on everything from car loans to mortgages. If you belong to a credit union, check to see if it will lend you money for a down payment or closing costs.
In seller financing, often the owner of a property will "hold paper"-that is, finance a portion of the purchase for the buyer by not taking all the proceeds when the sale closes. These bank programs plans can help with down payments. For example, Wells Fargo features the National Homeownership Mortgage, which lets buyers obtain 100-percent financing if their FICO credit score is 620 or better. The Department of Housing and Urban Development (HUD) is also proposing a "zero down payment mortgage" next year for Federal Housing Administration (FHA)-backed mortgages.
You've found the house you want at a price you can afford. Your other debts Banks will also look at other installment bills you pay monthly, such as credit cards, school loans and a car note, when evaluating you for a loan. In this instance they don't want your mortgage debt and other installment debt to be more than 40 percent of your gross monthly income. If it does, this will affect how much of a house loan you actually qualify for.
Credit rating is just as critical as income in qualifying for a home loan, because your credit rating tells banks how good your record has been in making timely payments on other debts. Credit-reporting agencies now connect a score to your credit rating. Financing isn't impossible, but you'll probably have to pay a higher interest rate or other fees to obtain the loan."
Even in today's red- hot real-estate market, there are house deals to be found. If foreclosed properties aren't bought privately, they're put up for auction to the public. Local newspapers will also advertise available properties and auction dates and times.
With community programs Increasingly, African-American organizations in predominantly Black neighborhoods are developing real estate or renovating housing and selling it on favorable terms to area residents. Hit upon out which organizations in your neighborhood are financing housing ventures by calling churches, community-development corporations and civil-rights agencies.
Real estate usually involves big money, which makes it ripe for scams. In Developer's glad-handing, many housing developers will offer to do everything for you from inspecting the property you're buying from them to financing the mortgage. Compare rates and your eligibility with banks or mortgage companies before going to a developer financing.
Home-a-loan sharking "Hard money" or "shark" lenders prey on high-risk borrowers with ads that say things like, "Mortgage money guaranteed! Your income is critical, and so is the price of the house, but interest rates are the key to calculating how much you can afford: The higher the interest rate, the more it costs to pay for the loan. Say you want to take out a $100,000, 30-year, fixed-rate mortgage loan. At today's prevailing rate of 6 percent, the payment on that $100,000 mortgage would be $599.55 a month. Suppose property taxes and insurance add $250 (actual amounts will vary, depending on the property), equaling $849.55 a month. At 9 percent the rate a few years ago, your mortgage payment alone would have been $804.62, or $205.07 a month more than at 6 percent. At the lower interest rate you can afford the mortgage, taxes and insurance for about the same cost of just the mortgage at the higher rate. With mortgage interest rates the lowest they've been in 40 years, houses have never been more affordable, which makes this a good time to buy, even with higher house prices?
Mortgage a loan that is made against real estate, with the real estate serving as the collateral. For instance, if you put down $5,000 on a property that cost $100,000 but is now worth $125,000, you have $30,000 worth of equity in the property (the $5,000 you put in, plus the $25,000 rise in value). Fixed rate the amount of interest you disburse on a loan remains the same for the term of the loan.
Points another term for percent: a bank, for example, that's charging three points on a mortgage loan, is charging 3 percent. PITI Refers to the four components of a monthly mortgage payment: principal and interest, taxes and insurance. Escrow The amount of money a bank may collect from you and hold in reserve to pay the taxes and insurance on a property.
PMI If you put down less than 20 percent of the purchase price when buying property, banks may require you to take out private mortgage insurance, which indemnifies them from loss should you default on the mortgage.
Closing the last step in the home-buying process in which you receive the title to a property. Expect to pay closing costs that could run between 4 and 6 percent of the mortgage amount.
Tara Roberts, an Atlanta magazine publisher, lived in New York City. Now bitten by the real-estate bug, La-Nita, 35, a surgical technologist, and Keith, 39, an inspector at Boeing, bought a second property for rental income in 9 1999 for $112,000. The seller of the first house held a second mortgage on this property, which he agreed to sell to the Thomases for $7,000. Keith tapped his company pension to buy out the seller's position. Shortly after, the owner of the house, who owed the first mortgage and had retired to Montana, agreed to let La-Nita and Keith buy the house for what he owed the bank, $105,000. La-Nita and Keith assumed his loan, meaning they took over the payments and didn't have to come up with any more money than the $7,000 they originally paid.
The seller of their new property paid all closing costs. Today they own three properties with an estimated total market value of $579,000 that cost them $10,000 out-of-pocket to acquire. The income from the two rental properties more than covers both those mortgages. Offered through a first-time home-buyers program in Brooklyn's predominantly Black Bedford-Stuyvesant, it was a majestic farick-and-limestone ltalianate four-story, four-bedroom, two-family town house, gleaming like a polished jewel on a block of stately brownstones. "I never thought I could get a property like that-I figured it would go to a sister in the choir," says Benson, 40, a corrections officer at Rikers Island prison, who quickly got his money back from the Queens house and applied for the Bedford-Stuyvesant house anyway.
Neil
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