Insights into the Mysteries of Mortgages

 

List a godmother’s rather diverse duties, and helping her godchild shop for a mortgage is likely not mentioned.

In my case, I had an overachiever for a godmother. So, many years ago, when housing suddenly became my personal Priority Number One, my godmother showed up to help, as they say, “with bells on.”

My budget persuaded me to focus on a little town in the Southwest, where the cost of living was low. But no matter where I landed, I knew what I had to do – save up three months rent, use one month’s worth as a security deposit, another month’s worth for the first rent payment and the final third as a rainy day fund. Done.

From Renting to Buying

To this day, I am grateful that my godmother had a better idea than just helping me get into another apartment. When she suggested it would be cheaper to buy than rent, the word “cheaper” was the part that caught my attention. With her brisk and confident outline of little down, the rest on loan, I put aside my hesitation to ponder a purchase price that involved far more zeroes.

The prospect of purchasing a home was at once daunting and alluring, but she made me feel like it was doable, even for little me. When my godmother declared we needed to “shop rates,” I was all for it, without knowing what that really meant. So off we went, bouncing from bank to bank to discover the nuances involved with each of the offered mortgage packages.

Decoding the Process

At the time, acronyms like APR, LTV and PMI made me feel a little dizzy and exhausted. They were exotic sounding, and required head-scratching and decoding before I could unwrap the whole “buy a home” process. But once I learned about annual percentage rates, loan-to-value, private mortgage insurance and other key concepts, I felt like I was finally sitting at the grownups table at Thanksgiving.

Fortunately, back then the prices were low and so were the rates, so once the veil of confusion had been lifted, homeownership was still a realistic goal for me.

But for many people, the idea of homeownership remains elusive and so often, the process is just too confounding. I don’t know what is keeping their godmothers busy, but clearly “shopping rates” isn’t a part of the equation.

Power of Financial Literacy

Many renters today simply don’t have the financial insights to see a path to becoming homeowners, at any point. But to seasoned developers and investors, this process is not mysterious at all.

Financial literacy is a required grown up skill, particularly for those of us who are budget-conscious. Discipline leads to those lofty credit scores that are required to achieve the dream of homeownership. Strict compliance with the ever-present credit bureau is a critical building block that the enlightened consumer knows they must have to play the lending game.

Anyone who has a mortgage, knows the value of mortgage interest deductions and asset appreciation. They understand that real estate is a wonderfully leveraged investment, and that other people’s money (another acronym, OPM) can make dreams come true — as long as you know what “leveraged investment” means.

It makes sense that my godmother wanted me to have access to the same things that informed Americans use to build their lifelong wealth. But had I not had an advocate in the process of buying my first home, at the eager age of 24, it would have been years before I would have taken it upon myself to even consider the idea.

To be candid, my godmother didn’t contribute any money to my down payment when I made that purchase. What she did give me was an intangible asset of information, which I continue to use to this day. I believe this is where the wealth we all need truly exists. It is in financial literacy, a sense of inclusion, and in the demystifying information that helps us find our way towards a new idea, and into a new reality.

Read the original article published on September 3, 2017.