steps
Just as every home needs a foundation, so does every wealth building plan. In the U.S.,
that foundation has been homeownership. As the National Association of Homebuilders
(NAHB) stated in 2003, approximately 28% of household net worth in the United States
comes from homeownership. AARP has reported that the net worth of home-owning families is seven
times that of renters. Housing’s role in wealth building has become increasingly evident since the year
2000. While the stock market suffered enormous losses, housing continued to surge.
Unfortunately, the advantages of homeownership are not enjoyed equally by all Americans.
According to NAHB, the nation’s overall homeownership rate stands at 68% but the rate for African
American households remains below 50%. Owning a home does more than provide wealth “on paper.”
Home equity also provides an important source of capital for activities such as home improvements,
financing higher education, and new business startups.
Take these steps to get on the first rung of the housing
ladder …a nd keep climbing higher:
Learn the language
Many lenders, real estate firms, and nonprofit groups offer free home-buying seminars to help
you get started. When you’re trying to finance a home, you’ll run into terminology you won’t
find elsewhere. These seminars can help you to understand what people are talking about.
Accentuate the positive
Don’t fear that you need lots of money to buy a house. There are ways to buy a house with
very little money. You might choose a low down payment mortgage if you want to hold onto
your cash for other purposes. Nevertheless, you should have at least 10% of the cost of the
house saved up to cover a down payment, closing costs, and other expenses.
Check your credit
When you start applying for a home loan, lenders will check your credit history, so you
should make sure that all of your current obligations are up-to-date. Take a good look at your
credit history and correct any errors before you apply for a mortgage.
Ask The Agencies
To check your credit, you can get your credit report from the three major reporting agencies:
■Equifax (800-685-1111)
■Experian (888-397-3742)
■Trans Union (800-888-4213)
You can call any one of these agencies for a report. However, if there are any errors, you
need to work with all three to get them cleared up.
Calculate what you can borrow
You need to be “pre-qualified” to get an idea of how much of a mortgage you can expect. As
a rule of thumb, you can get a mortgage of 2.5 to 2.75 times your income.
Lender or broker?
When you begin to line up financing, you essentially have two choices. You can work directly
with a given lender or you can hire a mortgage broker, who’ll choose from among a number
of lenders. If you already own a home, you might start with your present lender.
PRINCIPLE NO. 1
To Use Homeownership to Build Wealth
6
J
Declaration of Financial Empowerment




PRINCIPLE no.1
Select the right mortgage
Choose between a traditional fixed-rate mortgage and an adjustable-rate mortgage (ARM)
that changes its rate each year, up or down. If you’re going to stay in the house for five years
or less, an ARM is probably the best choice, because the initial interest rate will be lower than
it is on a fixed-rate loan.
So-called “3/1” and “5/1” ARMs are popular because you lock in on an attractive rate for
three or five years. Then the rate may go higher, year by year, but that won’t make a differ-ence
if you plan to be in another house by then.
Get with the program
Low-income and first-time home buyers often are eligible for special mortgage programs. They
might include lower interest rates, a lower down payment, or reduced costs. Knowledgeable
lenders, brokers, and community groups may be able to suggest such programs.
Get your pre-approval letter
To get pre-approved for a loan, you have to present some financial information to a lender.
That lender will look at your income, your debts, your credit rating, etc., and pre-approve you
for a certain loan: for example, you might be pre-approved for a 30-year fixed-rate mortgage,
at 5%, until a given expiration date.
How Much Mortgage Can You Afford?
There are any number of mortgage calculators that you can find on the Internet. For
example, one is presented by the Government National Mortgage Association (GNMA),
known as Ginnie Mae, which is a wholly owned corporation within the U.S. Department
of Housing and Urban Development.
To use this calculator, go to www.ginniemae.gov
When asked for your information, you might enter, for example:
Gross Income: $75,000.
Monthly Minimum Credit Card Payment: $250.
Monthly Car Payment: $400.
Other Monthly Obligations: $100.
Depending on current interest rates, the results might look like this:
Loan A: Loan B: Loan C:
FHA Regular VA Regular Conventional
Max Sale Price $227,896 $231,632 $231,092
Loan Amount $226,033 $236,380 $196,428
Persevere with the paperwork
After you find a house that you like, and your bid has been approved, you’ll have to go back to
the lender and turn your pre-approval into a solid commitment. You’ll have to clarify and verify
all the financial information you’ve already submitted in order to get your loan.
7

To Use Homeownership to Build Wealth
PRINCIPLE NO. 1
8
Declaration of Financial Empowerment
Decide on a desirable area
You’ll want to move into a dynamic, growing area, where school enrollment is going up and
new businesses are opening. Pick a neighborhood where the homes have been increasing in
value. Look around personally to assure yourself you’ll be moving into a neighborhood where
you’ll be comfortable. If you’re near schools and churches, you may enjoy the convenience,
just as future buyers probably will look upon those as favorable features.
Seek your dream house in your chosen community
Be realistic. You should not pay more than three times your income for a house and you
shouldn’t spend every penny you have. After buying, you should have an emergency fund of
at least three months’ expenses, in cash. Figure out what you can afford to pay and still have
money left over for furniture and other home furnishings. Tell the agent what you can afford
so you don’t waste time looking at houses that aren’t in the right price range. Once you have
a price range in mind, not only should you look for a house you like, you also should buy a
house with features that will enhance its value when it’s time for you to sell. A house should
have at least three bedrooms and two bathrooms, in order to have good resale value. A two-car
garage also adds appeal.
What to Look for in an Agent
■An understanding of your needs.
■Awillingness to work with you until your needs are fulfilled.
■Asense of professionalism.
■Someone who is dedicated to the profession.
■Afamiliarity with the area in which you have an interest.
■Afamiliarity with the price range in which you have an interest.
■Professional designations such as GRI (Graduate of the Realtors ® Institute) or CRS
(Certified Residential Specialist).
■Strong references from previous buyers.
Source: www.ourfamilyplace.com
Inspect the immediate surroundings
If the houses around the one you’re considering don’t look attractive, don’t buy. A house
might be beautiful but if a rundown neighborhood is a block away, you won’t get a good price
when you want to sell. An area with a neighborhood watch may have low crime while a
homeowner’s covenant can maintain standards of appearance and behavior. If you’re asked
to pay dues to a homeowner’s association, that may be a sign that the covenant is being taken
seriously, with the means to enforce it.
Be wary before buying
Evaluate the condition of the house to see that it has been consistently maintained and mod-ernized.
Make sure that the lawn has been kept up. Hire a home inspector to be sure the
electrical work, plumbing, and support beams are checked. Based on the inspector’s report,
tell the seller what the house needs and don’t buy the house until you know everything has
been done. Alternatively, you can plan on making the necessary repairs yourself but adjust
your purchase price accordingly.

PRINCIPLE no.1
9
Don’t overpay
To get an idea of whether an asking price is fair, ask realtors about houses that have been sold
recently in that area. Find out what they sold for. The best guide to what a house is worth is
the price someone else just paid for a similar house in the same area. When you negotiate the
price you’ll pay for a house, you should be reasonable. A wildly low bid will just irritate the
seller, who may refuse to negotiate with you. On the other hand, making a slightly lower offer
is a legitimate bargaining tactic.
Build instead of buy?
If you’d rather build a house, rather than buy one, the first step is to pick out a parcel of land
in a desirable location. Then you can go to a search engine such as www.google.com and enter,
“home plans.” Several sites will be shown, from which you can pick out a plan. The next step
is to hire a local contractor to turn the plan into living space. Get referrals and interview sev-eral
contractors. Pick one with experience building homes similar to the one in your plan.
Ultimately, you can save money by building, although you’ll spend time and effort.
resources
Websites:
http://content.realestateabc.com
Organizations:
National Association of Homebuilders,
800-368-5242; www.nahbc.org
AARP,
800-424-3410; www.aarp.org
Institute for Business & Home Safety,
813-286-3400; www.ibhs.org
Freddie Mac,
703-903-2000; www.freddiemac.com
Homeownership Alliance,
202-354-8205; www.homeownershipalliance.com
Mortgage Bankers Association of America,
202-557-2700; www.mbaa.org
Books:
Home Buying for Dummies,
by Eric Tyson & Ray Brown
100 Questions Every First-Time Home Buyer
Should Ask: With Answers from Top Brokers
from Around the Country, by Ilyce R. Glink
Buy Your First Home, by Robert Irwin
The Consumer Advocate’s Guide to Home
Inspection: Avoiding the Nightmare of
Purchasing a Money Pit, by Barry Stone
The 106 Common Mistakes Homebuyers Make
(and How to Avoid Them), by Gary W. Eldred
How to Buy a House with No (or Little) Money Down,
by Martin M. Shenkman & Warren Boroson
The African American HomeBuyers Guide,
by Imani Afryka
Homeownership Programs:
The Nehemiah Program; www.getdownpayment.com
Responsible Home Ownership Program; www.responsiblehome.com
National Association of Realtors’ Housing Opportunity Program; www.realtor.com
Local Initiatives Support Corp.; www.liscnet.org
The National Association of Housing and Redevelopment Officials’ HOME Investment Partnerships;
www.nahro.org
National Federation of Community Development Credit Unions’ Capitalization Program; www.natfed.org