The Benefits of Owning vs Renting
Purchasing a home is an intimidating process without the news reports about the current mortgage crisis, repeating terms like sub-prime lending and balloon payments. Families are losing their homes at an alarming rate and it has been reported that African Americans have been the target of mortgage lenders processing high cost loans by qualifying those with poor credit scores for high interests rates and hidden costs like balloon payments. Sub prime is a type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans.
Dedrick Muhammad co-author of a report from United for a Fair Economy called “Foreclosed: The State of the Dream 2008, cites the sub-prime mortgage crisis as the source leading to the greatest loss of wealth in modern US history for people of color who stand to lose over $200 billion dollars. Dedrick Muhammad is senior organizer and research associate at the Institute for Policy Studies.
It all seems overwhelming to our desire to own a home and have our own piece of land to cultivate overshadowed by the anxiety we all feel for those families that are victims of foreclosure due to predatory lending practices. We dread the thought of losing a home before we even purchase one. If you have ever lost a home is it a paralyzing experience. The feeling of shame, blame, and guilt to feel your home and security slipping away can be devastating.
In 2002 the “Home ownership Challenge” was introduced that represented a set of policy initiatives designed to make home ownership a reality for minority groups, mainly Blacks and Hispanics. The Department of Housing and Urban Development (HUD) analyzed the most recent home ownership data from the U.S.
Census Bureau and highlighted the obstacles preventing minority families from owning a home. When you do the math, after about 6 years a homeowners mortgage payment of $1000 over time will be less than rent of approximately $800 per month. Renting has fixed costs over the course of a lease and increases gradually over time.
The landlord is responsible for the property taxes, the maintenance of the property and insurance for the property to protect his investment. Any insurance the landlord has on his property does not protect your belongings while you are renting.
Mortgage payments can essentially stay the same over time depending on the terms of financing and give a home owner a tax savings advantage by deducting the interest on mortgage payments. Home owners are responsible for the physical condition and maintenance of the property, home owners insurance, property taxes, and the closing cost of buying or selling. The consequences are significantly more complicated in home ownership than in renting when you miss a mortgage payment.
Buying a home is an important investment decision which requires research and investigation. The obstacles to home ownership for African Americans and Hispanics has been highlighted by HUD and the U.S. Census Bureau as follows;
- A lack of inventory of affordable single-family housing available for sale in many areas where a majority of residents are minority families;
- A need for down payment assistance, which affects minority families to a greater extent than non-Hispanic whites because they have less accumulated wealth that can be used to help children with down payments;
- A lack of access to affordable mortgage credit;
- A lack of understanding of the home buying process;
- Weak credit histories, often arising from a poor understanding of financial matters and where financial counseling is required there is a lack of information about available home ownership programs in the community and language difficulties or cultural differences.
Renters are not confident that they can afford a home due their ability to make a down payment and meet closing costs.
African Americans are less confident than other groups in their ability to go through the home-buying process without facing some form of discrimination. African-American men and African Americans under the age of 35 are the most concerned about discrimination.
Credit is an even bigger concern for the minority households. Different parts of the American population also have significantly different levels of experience with credit and debt.
Responsibility is your ‘response’ – ‘ability’ to establish, maintain and monitor decent credit because credit is the key factor in qualifying for financing to purchase a home. Knowing your credit is weak and your ability to correct, and maintain it suffers from lack of motivation to tackle the “bad credit” mountain is being honest with yourself. If you can correct it, that is the best route. Do not look for a quick deal when you know that your response-abililty factor is as weak as your credit score.
Great programs offer assistance through the home buying process by educating and coaching you to shift your response ability to a new level of understanding about the breath and depth of this investment choice.
Do your research and buyer beware to avoid becoming a victim or being trapped with more financial debt and responsibility than you can handle. Losing a home is devastating and affects the overall security of your family and well-being.
