My Mind, My Body, My Journey™ 

You may have heard various opinions about home ownership, with some reporting the benefits of homeownership and others reporting the negative aspects of homeownership. In my opinion the benefits of homeownership out way the negative aspects. Homeownership is a commitment and important investment. Not everyone has the mindset for homeownership, as it involves dedication, budgeting, and sacrifices to maintain the home over time. Homeownership requires planning and preparation in advance such as saving for a downpayment, building up and maintaining your credit score, maintaining steady income, and reducing/maintaining past debts. Fortunately, there are many options for those who have never owned a home and/or those who have not owned a home in the last three years (i.e., first time homeowners). Before we get into some of the options, let’s explore some of the benefits and negative aspects of homeownership, to assist you with making a decision that is best for you.

• Benefits of home ownership
  • Home ownership provides you with consistent monthly expenses, as your mortgage interest rate is the same over the course of the loan. There may be some fluctuations with costs of property taxes, repairs, and home association dues; however, those costs are going towards your property investment and assets, as opposed to your landlord’s assets and investment.
  • The value of your home may appreciate over time, especially as you pay down the mortgage balance and build equity in your home. This appreciated value can increase your net worth and help you build wealth. According to the US Census Bureau homeowners tend to have a net worth that is 80 times higher than the net worth of renters¹.
  • Homeownership comes with many tax benefits, especially if the home you own is your primary residence. Many states allow you to deduct costs related to the initial purchase which can include moving expenses. Many states allow you to deduct home renovations such as the installation of new windows and doors, and the purchase of energy efficient appliances, and solar panels.
  • Flexibility to design the home of your dreams. If you purchase a home, you have flexibility to remodel to your likeness, which you would not get with renting. There are some limitations with condos and townhomes due to home association restrictions, but you still have flexibility to remodel the interior of your unit.
  • Less expensive than renting, after the initial costs of home ownership (i.e., down payment, closing costs, move in expenses), owning a home is less expensive monthly when compared to renting in most markets. In some markets, you can own a larger home for much less than the cost of renting a smaller home/unit.
  • Home ownership can prepare you for future investments in real estate which can support entrepreneurship and provide you with the opportunity to reach millionaire status. It has been estimated that 90% of millionaires, obtained their wealth through real estate, which includes investing in real estate through owning rental properties or purchasing properties and renovating the property to resale for a profit (i.e., house flippers). Some real estate investors have reached billionaire status through their investments².
• Negative aspects of home ownership
  • Homeownership requires some preparation and commitment such as having steady income, good credit, and savings towards the downpayment requires some financial literacy, discipline, and maturity. Some people may not have those skills needed to purchase a home or maintain the home over time. Much like higher education isn’t for everyone, homeownership also isn’t for everyone.
  • Monthly and annual costs can be expensive due to taxes, repairs, and fees. Inability to maintain those expenses can negatively impact your credit rating and assets, especially if you have a foreclosure, need to file bankruptcy, or must pay back taxes to your local government.
  • If you purchase the home with someone else (i.e., partner, friend, relative) you both will be equally responsible for the expenses related to the home, which could be problematic if the other person is not able to assist with maintaining the expenses or if the other person has drastically different money management skills.
  • Sense of permanency, as you become a member of a community and are tied to a specific location. This could be a benefit if you do not plan to relocate and enjoy your community; however, it can be difficult if you plan to relocate and if you have concerns about your community that relate to safety. A renter can move once their lease ends or even renegotiate the terms of the lease with their landlord. However, a homeowner doesn’t have that flexibility and could have additional monthly expenses if they need to pay for more than one mortgage during their relocation.
  • Risks to owning investment property, such as theft, damage to the property, and legal expenses if the tenant is unable to make monthly rent payments and you need to pursue eviction or seek past due rental payments. Some states have very generous squatter rights legislation, which allows someone to illegally enter and live in your property for free. During the period the “squatter” resides in your property, you are typically responsible for taxes, utilities, and other expenses occurred during that period. If your state doesn’t have legislation in place to protect your property while you are a victim of a “squatter” you could potentially owe thousands and experience a major financial setback.

Now that we have been able to review the benefits and negative aspects of home ownership let’s explore some options for first time homeowners and first-time property investors.

• Programs for first time homeowners. Many programs for first time homeowners include assistance with downpayment, closing costs, and interest rates. Some programs support low to middle income home buyers and others support homeowners with lower credit scores. I will highlight the most common programs below.
  • The Federal Housing Authority (FHA) has a program that provides loans for individuals with lower credit scores and histories of bankruptcy to support home ownership. To qualify for this program, you need a credit score of at least 500. If your credit score is between 500-579 you will need to put down 10% of the purchase price as a downpayment. If your credit score is at least 580 then you will need to put down 3.5% of the purchase price as a down payment. There are restrictions, such as the home would need to be your primary residence and you need to have at least 2 years of steady employment history. You will also be required to have a home appraisal and private mortgage insurance (PMI). FHA loans also can provide you with the opportunity to include the cost of energy-efficient improvements (i.e., doors, windows, appliances, solar panels) into the mortgage. Which can be beneficial as it will cover the cost of those improvements upfront.
  • The HomeReady Mortgage Program provides first time home buyers with credit scores above 620 options to pay a 3% downpayment and receive competitive interest rates. You will be required to pay a PMI.
  • Freddie Mac and Fannie Mae loans require downpayments of 3% and restrict the property to those in underserved communities.
  • Veterans Administration (VA) loans provide options for active service members, veterans, or surviving spouses to purchase a home. Additional benefits include no down payment, no minimum credit score, and no PMI. It is worth noting that although the VA loan has no minimum credit score requirement, most mortgage lenders require a minimum FICO score of 580.
  • Native American Direct Loan is specifically for Native American veterans to purchase a home with no downpayment, PMI, or closing costs. The home must be located on Federal Trust Land.
  • HUD Good Neighbor Next Door (GNND) Sales Program provides public service workers in law enforcement, teaching, or fire fighters with opportunities to receive 50% off the HUD appraised value of select homes. This program requires you to live in the home for 3 years and purchase in a revitalization area. The homes are only listed for sale during a 7-day window, so it requires a faster purchase window.
  • HUD Dollar Homes Program provides opportunities to purchase homes for only a dollar, (yes $1 😊). The homes are previously foreclosed FHA homes, which have been on HUD’s website for over 6 months. The homes have been valued at less than $25,000 but provide opportunities for development and community reinvestment.
  • Employer sponsored and local government sponsored homeowners’ programs. Some employers and local governments provide homeowner assistance programs, so it may be worth exploring your employer benefits and/or housing authorities for options.
  • Home Possible Mortgages are conventional loans, which provide you with more options in your search when compared to government backed loans. Conventional loans provide lower down payments and more flexible terms. The downpayment requirement is 5%, which requires PMI. Once your mortgage is 79% of the home’s appraised value, you can opt to cancel your PMI. I used this program to become a homeowner for the first time, I was able to purchase during a buyer’s market and obtain a fixed mortgage rate of 4%. I would recommend this option for those pursuing home ownership, who have good credit, and want more flexibility to purchase homes in a variety of neighborhoods as opposed to being limited to certain neighborhoods and property types.
• Programs for first time investors. Investing in real estate will require much more work and discipline than saving to purchase a home. Much like home ownership, you will need to save money, improve your credit, and research options for financing. It would benefit you to have a realtor, attorney, mortgage broker, and contractor for repairs and renovations in your network. It may also be beneficial to start small, with your first investment property, as you work to build your portfolio. If you plan to grow your investments over time, it may be worth establishing an LLC to protect your personal assets.  Some people may wish to become licensed realtors to purchase and sell their own properties. Research the pros and cons of pursuing real estate licensure verses using a trusted real estate agent. Here are a few grants for potential investors.
  • The US Department of Treasury offers grants to potential real estate investors. The grant requires the organization to pay taxes (i.e., for profit or LLC) and submit a detailed proposal of the costs of the real estate property which include renovation costs.
  • HUD provides grants for investment properties that include repairs, provided that the property will be designed to serve as a useful purpose for the community. Recipients can be both for profit, nonprofit, and private investors. Funding for the investment will not exceed $500,000.
  • HUD also allocates $2 billion dollars for the creation of low-income housing via community block development grants. Local governments provide grants to nonprofits who can partner with real estate investors to build, rehabilitate, and purchase homes for low-income residents seeking affordable housing.  

I encourage you to explore whether home ownership and property investing is right for you. Whatever option you decide, take your time and plan accordingly. As highlighted above, you do not need to have perfect credit and can make a purchase with a modest downpayment.

Wishing you health and happiness.

References:

1. Gaps in the Wealth of Americans by Household Type. United States Census Bureau Website. https://www.census.gov/library/stories/2019/08/gaps-in-wealth-americans-by-household-type.html. Published August 27, 2019. Accessed June 25, 2023.
2. The Richest Real State Billionaires on the 2021 Forbes 400 List. Forbes Magazine. https://www.forbes.com/sites/giacomotognini/2021/10/05/the-richest-real-estate-billionaires-on-the-2021-forbes-400-list/?sh=2ba663796324. Published October 5, 2021. Accessed June 25, 2023.