NEW YORK (MainStreet) — In 2011, Elias Whitmore signed a 24 month lease while earning a fixed income as a flight mechanic at the Hartsfield Jackson Airport in Atlanta. After the initial lease expired, he attempted to extend it, but Whitmore's landlord had decided to sell the home. As a result, the 35-year-old flight mechanic was forced to move out at a moment's notice.
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"I thought about buying the home, but my credit score isn't all that great for a mortgage," said Whitmore, a motorcycle enthusiast. "Had I known my landlord wanted to sell two years ago, I would have saved up the money."
The Great American Dream typically includes a house but, like Whitmore, not everyone is cut out for home ownership.
About 32% of the overall population live in apartments compared to 67% who own their home, according to the National Multi Housing Council (NMHC).
"The real estate industry has done a great job of persuading us that the American dream starts with homeownership--it's the greatest lie ever sold," said Patrick Bet-David, author of Doing the Impossible (Tico, 2012). "Hundreds of thousands of families are going through the pain and struggle of trying to not miss their next mortgage payment simply, because they purchased a home prematurely."
Home prices were up 12.4% for the 12 months through July, according to the Standard & Poor's/Case-Shiller Index released this week.
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"Rising interest rates can stimulate people who've been thinking about buying a home to get more serious, and as those people come into the market, they can drive home prices up if the supply is tight," said Rick Allen, chief financial officer with MortgageMarvel.com. While a Bankrate study revealed 23% of Americans believe real estate is the best way to invest money not needed for more than 10 years, foreclosures have increased 47% from a year ago, according to RealtyTrac.
"Don't even consider buying a home until you have at least 12 months of mortgage payments saved," said Bet-David. "That might seem like a high number, but it will prevent stress and aggravation down the road. The mortgage payment is only part of the battle. Don't forget taxes, insurance, association dues, maintenance and repairs."
For this reason, experts advise potential home owners to be financially prepared before acquiring a mortgage.
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"The best way to transition from leasing to owning is to become educated about the process," said ERA Blue Diamond Realty broker Richard Bridge. "Many go into buying a property with limited understanding of what to expect. There are loads of tools and resources for a first time home owner and in some cases third party assistance both financially and physically."
The upsides of renting include:
1. Fewer out of pocket expenses when signing a lease agreement. "Most renters pay their first month's rent and a security deposit that is roughly the same as the monthly amount," Bridge told MainStreet.
2. Typically, the landlord is responsible for maintenance and repairs. "The apartment industry is a competitive and robust $1.1 trillion industry that helps 35 million renters live in a home that's right for them," said Tom Bozzuto, chairman and CEO of the Bozzuto Group
3. Relocating is possible with minimal ties for a limited stay in one particular area
4. A less than stellar credit score is acceptable with some leases. "There are those who have fallen on hard times and may be unable to financially qualify to own a property," Bridge said.
5. Lower monthly expense. "Home ownership is one of the greatest expenses known to mankind," said Bet-David. "Most people would be so much better off taking the money they put into a home and starting a business. Self-employment is one of the fastest ways to acquire substantial amounts of wealth and it's with this abundance of cash that you can then truly enjoy homeownership."
However renting a home is not the best option when it comes to stability.
"Owning a home is an investment that can pay large dividends because having a tangible, appreciable asset provides an opportunity for a home owner to leverage things like college, second homes, retirement and debt consolidation," said Bridge.
--Written by Juliette Fairley for MainStreet