Greg Bleers, a dedicated renter, had no idea he could step into the respected world of homeowners with so little hassle and, more important, with so little money.
The 30-year-old Chicagoan had rented apartments for 11 years. He tested the trendiest spots Chicago had to offer including Roscoe Village, Lake View, Rogers Park and Lincoln Park.
Loved ’em. Left ’em.
“I like to think I was checking out different neighborhoods,” said Bleers, who became adept at packing and unpacking his belongings. “But I didn’t really know I could afford to buy a place.”
With a nudge from his sister, Bleers toured new for-sale loft developments in the city. He found a one-bedroom unit he liked for about $180,000 at Buck City Lofts, 1740 N. Maplewood Ave.
He was surprised to discover he could obtain a mortgage, even though he was a freelance computer programmer with a somewhat unpredictable income. He was even more astonished to learn that the project developer would let him pay half of the 5 percent down payment upfront; the rest to be paid in installments over the next six months.
“It makes me cringe to think that I spent 11 years paying rent,” said Bleers. “It feels good to know I am working toward building a future. I won’t miss moving every year either.”
Bleers and many other long-time renters, some of whom previously might have never considered owning, have found there’s no time like the present to buy a new house.
Mortgage interest rates are at historic lows, hovering just below 7 percent. And even though unemployment rates have risen lately because of a shaky economy, experts say the overall jobless rate is not all that high; first-time home buyers are plentiful. Also helping are new programs that lower down payments for first-time buyers.
Lenders are generally more lenient, too, allowing borrowers to spend more of their monthly income on housing than they had permitted in the past. And developers, eager to sell new units, are more willing than ever to work with buyers who need help with the down payment.
“This is a good time to buy,” said Brian Wesbury, chief economist at the Chicago investment firm of Griffin, Kubik, Stephens & Thompson Inc. “The American dream of home ownership has always paid off. It will continue to do so in the future.”
Ownership at record level
According to the U.S. Census Bureau, the nation’s home ownership rate is now at its highest level, 67.8 percent, since the statistic was first reported in 1965. By region, the Midwest has the highest home ownership rate, 73.1 percent. The home ownership rate in Illinois is 69.4 percent.
Steadfast renters may be a free-wheeling breed, but many are tempted into home ownership because it makes a lot of financial sense. New homeowner Bleers said: “My monthly payments are less than what I was paying in rent.”
Including taxes and assessment, Bleers pays $1,430 a month for his place at Buck City Lofts. He has a roommate with whom he splits the cost, so his total outlay each month is $715. His share of the rent in his old apartment was $775.
Not all renters decrease their monthly costs when they buy, but owning a house does add up to a brighter fiscal picture for most.
“A house is an appreciating asset,” said economist Wesbury. Homes in the Chicago area have historically increased in value about 7 to 8 percent a year.
Another advantage of a home purchase is that any gain made on a home when it is sold is tax-free up to $500,000 for a couple.
“When you sell a stock that has risen in value, you owe a 20 percent tax on that gain,” Wesbury explained. “Real estate is the most efficient tax-free investment you can find.”
A home purchase has another tax benefit. Interest charges on a mortgage loan can be deducted from income tax. “By owning you are really making the return that the owner or landlord would be making,” Wesbury said. “That’s what you are attempting to do.”
Kimberly and Jason Curtis, renters for the last decade, recently bought a new townhome at Montgomery Crossings in west suburban Montgomery. The couple wanted to buy a house, but could never save enough money for the down payment–a tough hurdle for many first-time buyers.
An unexpected windfall of cash gave them enough money to buy a place of their own. The couple and their two children plan to move into their new townhome in September.
Taking long-term approach
The monthly mortgage payment will exceed their current rent, but the couple believes the deal works in their favor.
“We figure owning will be better in the long run,” said Kimberly Curtis, who desperately wants more living space than the family has in its current two-bedroom apartment.
Since the Curtis family bought their townhome, prices of similar places at Montgomery Crossings have increased several thousand dollars.
“We’ve already made another $3,000,” said Kimberly Curtis. She hopes to stay in the townhome for about 10 years and build up some equity that can then be used to purchase a detached single-family home.
The numbers for home ownership vs. renting are convincing. Mortgage executive Tom Ward uses the example of a house that costs $185,000 with a down payment of $10,000, resulting in a $175,000 mortgage loan at 6 percent for 30 years.
Ward estimates the home buyer would have a $10,500 income tax write-off for interest paid the first year. Property taxes totaling, say, $3,600, bring the write-off to about $14,100.
If the buyers are in the 25 percent tax bracket that write-off equals about $3,525. If the house appreciates at 7 percent annually, the first year gain is $12,950.
Considering their costs for taxes and appreciation, Ward figures the couple would lose $1,379 a month by renting.
“The person making out on that deal is the landlord,” said Ward, chief executive at Majestic Mortgage Corp., Mundelein.
For long-time renter Tim Lemberger, age 32, the decision to buy a place was made when he heard his financial clock ticking.
“I read that the average person buys his first home at age 31,” he said. “I started to panic because my life was behind schedule.”
Move will take time
Lemberger recently bought a one-bedroom place at 20 N. State St., a downtown building being rehabbed. He expects to move there in about a year:
“It makes me feel more secure. But it was not easy to save the money for the down payment.”
Down payments are a big sticking point for many long-time renters. They complain that saving up for a home is like trying to hit a moving target. By the time they save enough down payment for a particular place, the price has increased and they need to save even more money. Mortgage executive Ward says things are getting a bit easier. Twenty percent down payments, a standard for years, no longer are the rule. Ward says 5 percent down payments, with mortgage insurance required, are not uncommon. Also available are no down payment programs.
Buyer needs zero cash
For example, the Nehemiah grant program provides funds for down payments and closing costs. The seller puts up the money. But the buyer often contributes zero cash. The California-based Nehemiah program is the largest privately funded down payment assistance program in the nation.
Like a handful of other towns, west suburban Bellwood recently announced plans to offer a special program for first-time home buyers that pays closing costs as well as a down payment. The town hopes to attract more first-time home buyers and increase home ownership levels in the area.
Developers anxious to sell units help with down payments too. Dubin Residential, Inc., Chicago, builds lofts and condominiums mostly for first-time buyers. Dubin will stretch down payments over a matter of months instead of requiring the home buyer to plunk down 5 or 10 percent upfront.
“We are in the business to sell units,” said Dave Dubin, company president. He added, however, that creative down payment plans are usually not available at finished properties where units, in his opinion, are fairly priced.
“Whatever we can do within certain parameters we will do,” he said.
Meanwhile, new homeowner Bleers isn’t thinking about returning to the renter’s world anytime soon.
In fact, he’s already contemplating his next purchase, calculating how he can move up the home ownership ladder.
He figures he’ll purchase a single-family bungalow next because he heard the city has a program to encourage bungalow buying.
“I’m going to get married in 18 months and I’m thinking ahead,” said Bleers, who plans to use the gains from the sale of his first place to buy a single-family home. “I’m going to buy as much bungalow as I can afford.”
A rush to buy
– Low mortgage rates are causing a gradual but significant shift by renters toward buying a home.
– To speed the trend, builders are offering mortgages with low down payments.
– Trying to stem a loss of tenants, some landlords are offering a month’s free rent or other incentives.
– The buying rush is adding to demand for starter homes, especially those at the low end of the price spectrum.
