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Wealth For Life Principle No. 5: I will use homeownership as a foundation for building wealth.
Tyre Sperling dreamed of owning his own home as early as his senior year at Florida A&M University. The Los Angeles native graduated in 2005 and moved to the South a year later. “I couldn’t afford a home in L.A.,” Sperling says. “The median price of a one-family home at that time was more than $500,000. The cost of living in Atlanta was dramatically lower.” Sperling’s sister had just moved there and told him the city was a great place for young, black professionals. He now works as a public relations specialist with United Parcel Service.
Sperling inherited $5,000 from a trust fund and saved it toward his down payment. But it wasn’t until he attended financial seminars at his church that he felt ready to start looking. Besides, the timing was right. “I had just put in a 60-day notice on my apartment complex. Once I saw the news and what was happening in the financial and housing markets, I asked myself, ‘Why move into another apartment? Why not buy a home?’ ”
Sperling, all too aware of the unprecedented spike in foreclosures, also recognized that declining home values represented an opportunity for him to buy a house below market. “That’s how the process started,” says the 25-year-old. “It was quick and painless. I closed within 30 days.” Sperling was attractive to lenders because he paid his credit card balances in full each month and academic scholarships enabled him to avoid student loan debt.
Last August, Sperling purchased a two-bedroom town house in Fulton County. The house was appraised at $125,000, but Sperling paid only $90,500 since it was bank-owned. He put down 3% and obtained a 30-year fixed-rate mortgage at 6.875% from the Federal Housing Authority. He also paid 3% in closing costs. “The bank had lowered the price so much that they were unwilling to negotiate further,” he says.
Currently, a plethora of banks have foreclosed properties for sale, says Rob Robertson, Sperling’s mortgage banker and vice president of operations in the Atlanta division of GMFS Lending. While Sperling got a good deal, not every foreclosure is a bargain, Robertson warns, especially if the house requires a lot of upkeep and the resale value is low compared to that of neighboring homes.
“Now is definitely the time to buy,” Robertson says. “Because of the demand over the last four years, builders built spec homes–houses without specific borrowers committed to purchase. But now, with most of the mortgage programs and creative financing options eliminated, the buyers who used those programs–about 20% of the buying market–aren’t buying. As a result, the market is overbuilt and home values have declined in most areas.”
Sperling was committed to a price range, not necessarily to the idea of buying a foreclosed property. He considered new construction but held fast to his budget. “I didn’t want to go past $110,000 even though I was pre-approved for $165,000. I couldn’t afford that amount with