Guides for Moderate-Income Buyers

The wife is a special-education teacher, the husband a hardware store manager. Still in their 20s, they anticipate major increases in household income in the future. At this point, however, their earnings are moderate.

Did that keep them from buying a home of their own? On the contrary. Through careful planning, a lot of self-discipline with their spending and a small cash assist from their parents, they were able to buy a two-bedroom house with a one-car garage.

“They realize this is not going to be their dream house,” said Karen A. Jaworski, a broker-associate for the Realty Executives chain. “It’s a stepping-stone. They look upon it as an investment for the future.”

You may be a young teacher, police officer, postal carrier or a renter of any age who has yet to attain an executive salary or to win the lottery. But that doesn’t mean you should give up hopes of homeownership. Given the relatively low interest rates and the increasing number of programs requiring little or no money down for first-time buyers, there is little reason for those with moderate incomes to shy away from the housing market.

“There’s no greater feeling of independence than owning your own place,” said Jaworski, whose daughter is the special-education teacher who bought the starter house with her husband.

“You want an agent who gets a thrill out of working with buyers,” says Nancy L. Clayton, a Century 21 broker-associate.

Clayton has sold homes for 16 years but still finds intoxicating the experience of helping people of all incomes fulfill their housing hopes.

Recently, for instance, she assisted a young Marine Corps enlisted man and his wife, a school secretary, in buying their first house: an attractive three-level place with cedar siding.

“They were tickled pink, and I was almost in tears,” Clayton recalled.

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Here are four guideposts for moderate-income buyers:

No. 1: Build buying strength before you get into the housing market.

The novice home buyer’s first stop should be the office of an established mortgage lender. Within a matter of an hour or two, you can learn a huge amount about new mortgage products and take an electronic look at your credit report, which may require corrections or changes.

Possibly you’ll need six to nine months lead time to pay off credit card bills and accumulate cash, Jaworski noted. But at least you’ll be moving in the right direction, and the lender can help you focus directly on your goal, which can be a powerful incentive.

Before you enter the home-shopping arena, ask the lender for a letter stating that you have been pre-approved to buy a house in the price range you’re seeking.

Not only does this strengthen your bargaining position by making you a virtual sure bet as a buyer, it also enhances your self-confidence--something many novice purchasers truly need to get the best possible deal.

No. 2: Be prepared to roll up your sleeves and start painting.

“Trying ‘sweat equity’ may not be as bad as you think,” said Robert Irwin, author of “Tips and Traps When Buying a Home” (McGraw-Hill, 1996).

No doubt about it, everyone is busy today, especially those in dual-income households with children. There’s a huge preference for homes in move-in condition--right down to the polished door-knocker. Compared with five years ago, fewer people are willing to buy homes that need work, Irwin said.

But that presents an opportunity for moderate-income buyers willing to sacrifice what scarce time they have to earn their way into a house with greater investment potential than they could otherwise afford.

For example, Jaworski says, her daughter and son-in-law were able to get an unusually good deal on the ranch-style house they purchased “because it needed a paint job.”

Among other superficial problems, the house had a lavender bathroom that the couple “completely redid” through their own labor. As a result of their diligence, Jaworski calculates that the couple now owns a house with a market value $30,000 higher than it was before they closed on the deal just a matter of months ago.

But the couple was careful to select a house whose problems were solely superficial, not serious. Through a careful inspection, they determined that the place was structurally sound; indeed, it featured a brand-new roof and other expensive new features.

No. 3: Don’t rule out a home loan backed by the VA.

A mortgage insured by the Veterans Administration, available as a benefit to those with a military background, has both pros and cons. On the good side is the fact that a veteran can buy with no money down and may be able to qualify for a larger loan than if he took a conventional mortgage.

However, the VA imposes a number of regulatory restrictions on borrowers, which makes it especially tough to use a VA loan in a high-cost community.

Still, it could be worth tracking down a lender who is comfortable with the paperwork involved in making VA mortgages, particularly if you’re a veteran who is purchasing at the lower end of the local price spectrum.

No. 4: Memorize the names Fannie Mae and Freddie Mac.

They’re monumental forces in the mortgage industry, though the consumer rarely does business with them directly. Fannie Mae and Freddie Mac are large national companies that invest in the mortgages made by lenders across the country.

Why should you care about Fannie and Freddie? Because they write many of the rules that guide the industry and because they’re constantly approving new loan products designed to help moderate-income buyers of all sorts.

As a moderate-income buyer, you should work solely with lenders who are fully acquainted with the repertoire of new loan products available through Fannie Mae and Freddie Mac. These include a number of low-down payment loans, noted Irwin, the real estate author.

“It depends on the neighborhood, but in the vast majority of areas, a person can get into the housing market without a lot of cash down or a big income,” he said.

Distributed by Universal Press Syndicate.