Smart Moves by Ellen James Martin

Tips for Nervous Homebuyers

A federal employee in his early 30s just signed a year-long lease for an upscale apartment near the National Mall in Washington, D.C. For a two-bedroom, two-bath apartment, rent on the place tops a handsome $3,000.

Instead of putting out that much rent each month, he could have bought a condo-apartment or a modest townhouse in the D.C. area. In fact, that would have been his preference. But having come of age during the housing downturn of a decade ago, he’s terrified of the commitment that comes with a mortgage. This explains why he keeps renting.

Like the federal employee in this true story, a minority of millennials are too fearful about homebuying to make a purchase. These include people with vivid recollections of family members and acquaintances who lost their properties to foreclosure during the Great Recession, which cost them both sleepless nights and ruined credit.

But is financial upheaval truly more likely for homeowners than renters? A new study from the Urban Institute (, a Washington, D.C. think tank, questions that assumption. Indeed, the study -- which compared the financial situations of tenants versus owners -- found that those who rent suffer more financial uncertainty.

“Rents can often climb each year, compared to a fixed-rate mortgage where home payments remain the same every month over a period of years or even decades,” says Corianne Payton Scally, a co-author of the study.

Scally acknowledges that across time, homeowners can confront rising property tax bills, obviously not a problem for tenants. Still, she says that compared with owners, renters at the same income levels face higher rates of “material hardship” and are less likely to have savings for emergencies.

“Renters can see a higher proportion of their income going to pay their rent year over year if their income does not keep pace with rising rents. They can start to feel the financial pinch and may have few options but to start cutting costs elsewhere,” she says.

Are you a renter who, despite your fears, is determined to pursue homeownership? If so, these few pointers could help:

-- Remind yourself of the key reasons you want to buy.

Anxiety is an influential factor that can stop people from actualizing their home-buying plans, even when logic tells them it’s the right time to go forward, says Sid Davis, a real estate broker and author of “A Survival Guide for Buying a Home.”

What’s important is to head into any purchase with as much objective information as possible, he says.

To be sure, there could be legitimate reasons to wait to buy. Perhaps you have a basis for worry that the company where you work could soon lay off employees, or that your spouse could soon be subject to a job loss.

“None of us has a crystal ball. But those who have secure jobs and truly want to own a home in order to build equity and enhance their family life might be kicking themselves later if they wait too long,” Davis says.

-- Seek mortgage pre-approval from a reputable lender.

The last recession ushered in an era of highly conservative lending practices, and most lenders still go to great lengths to ensure that the mortgages they originate are solid. This means borrowers must be unusually well prepared to respond to the lender’s requests for documents.

As proof of income, many lenders now insist on more than the customary pay stubs and W-2s. For example, they’ll likely ask you for federal tax returns. In addition, they’ll probably want assurances that the funds you’ve accumulated for your down payment have been in your savings or checking account for some time and weren’t borrowed from an uncle just last week.

The time you spend documenting your eligibility for a home loan is time well spent if the lender gives you a “pre-approval” letter before you begin shopping for a property. This letter is a vitally important bargaining tool to help you win the home of your choice.

-- Take a cautious approach to home selection.

Many popular neighborhoods are still short on available inventory in the starter-home category, although this situation is starting to ease. Davis says this pressure to compete for the best properties is causing some anxious buyers to back off.

“After losing a property to another bidder, some home shoppers get very discouraged and throw in the towel,” he says.

Rather than abandoning your pursuit of a property due to tight inventory conditions, Davis urges you to “hang in there” and keep looking.

“In the late fall and winter, home shoppers face less competition from other bidders than they do in the spring and early summer, making this an ideal time to land an exceptional deal from a highly motivated seller who must move,” Davis says.

If you’ve identified your target neighborhood but haven’t yet found a suitable home there, spend your waiting time getting to know the community, making sure it’s the right place for you and your family.

“Walk through the neighborhood, chatting with residents. That way, you could be the first to learn about up-and-coming listings. Be patient and don’t let your agent rush you into the wrong choice. Remember that the home you buy now could be in your ownership for years to come -- so it’s folly to make an impulsive decision,” he says.

(To contact Ellen James Martin, email her at