Get the Best Mortgage in Town

One of the newest and most important developments in real estate lending is that now almost everyone can get financing, from the most- to the least-qualified buyers.
In the past, in order to get a mortgage you had to be a premium buyer—high salary, few other debts, cash in the bank, and sterling credit. Not so anymore. Lenders are taking less-qualified buyers and offering them financing with slightly higher interest rates to make up for the added risk. In other words, if you’ve been shy of applying for a mortgage because of some credit problems, give it a try. You could be surprised at the positive results. Of course, if you’re that prime buyer, you’ll get the lowest interest rates and the best terms.

The Lowest-Interest-Rate Hunt
For most people, the first consideration with regard to a mortgage is the interest rate. Higher interest rates translate into higher payments; lower rates, lower payments. Consequently, most people want the lowest interest rates possible.

TIP—SHOP LENDERS, NOT MORTGAGES
If you have a credit blemish or have trouble otherwise qualifying, shop for a lender, not an interest rate. Some lenders specialize in borrowers with problems; others won’t touch them.

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TRAP—BE CAREFUL WHEN COMPARING MORTGAGES
The best way to compare interest rates is to do it for like-kind mortgages. You don’t want to compare apples and oranges. Today there are two major kinds of conventional (nongovernment insured or guaranteed) mortgages available: a fixed-rate mortgage, where the interest rate does not change for the life of the loan; and a variable-rate mortgage, where the interest rate can change. When you compare mortgages, be sure you compare fixed-rate to fixed-rate and variable to variable. (There are so many different varieties of variable-rate mortgages that comparing them is really very difficult.) Of course, atsome point, you’ll also want to compare variable with fixed, but that’s a much more complex calculation, as we’ll see shortly.
How to Compare New Fixed-Rate Mortgages
Each lender who offers fixed-rate mortgages posts its current interest rate. These rates are often printed weekly in local papers. They also can change daily. In many areas a newsletter or online service gathers them all up and sends them off to agents.

TRAP—WHEN INTEREST RATES ARE LOW, LOCK THEM IN
Variable interest rate mortgages always offer lower rates. But the variable rate will rise when the interest rate market goes up. It’s usually better to lock in a fixed-rate mortgage when the interest rate market is low, rather than to try for an extra point or so by getting a variable rate.
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There are also numerous online lenders such as eloan.com and mortgage.com that post their current interest rates. These are very easy to check simply by going to their Web site. Major online services such as MSN.com and AOL.com will also lead you to mortgage rate postings.


But best of all, if you check with a mortgage broker who handles dozens of lenders, he or she can quickly tell you the best rate in town for the specific amount and type of loan you’re hunting for.

There are also points and fees. What’s that all about?
What Are Points?
A point is a single percentage of a mortgage. Thus two points on a $100,000 loan equals $2000; four points equals $4000, and so forth.

Points are a trade-off the lender is making. If you want a lower-interest-rate loan (lower than the market), you can get it, if you’re willing to pay points. The more points you pay, the lower the interest rate will be.
On the other hand, since points are cash out of your pocket, you may be willing to accept a higher interest rate. The higher the rate, the fewer the points. Normally, at zero points, you’re paying the market rate.
Note: The interest rate is very important since it will help determine your monthly payment. The higher the interest rate, the higher your payment. The lower the interest rate, the lower your payment.

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How to Get a Lender to Put Up All the Money

Nothing-down financing—does it really exist? Or is it just a buzzword used by real estate gurus selling you a seat in a seminar or a tape on late-night TV?
Today, it really does exist, for some buyers.
And that’s a good thing, too. Most people who want to buy a home often find that the biggest roadblock is coming up with the cash down payment. (So if you’re feeling the pinch, rest assured you’re not alone!)
Let’s face it; we live in a credit society. Afamily with a $100,000 annual income can easily obtain a new car loan with almost nothing down and a $500-a-month car payment. But that same family may not have $5000 in the bank in a savings account. In fact, over 70 percent of all families have little or no cash savings. (On the other hand, that other 30 percent or so have whopping big savings accounts!)
What Your Mortgage Payment Includes:
■ Interest on your loan
■ Return of equity (principal)
■ Hazard insurance (if you put down less than 20 percent)
■ Taxes (if you put down less than 20 percent)

I’m reminded of that old saw about the two investors who want to buy the Empire State Building in New York. The first investor, just returned from a meeting with the sellers, tells the second, “I’ve got good news and bad. The good news is that they’ll take our $100 million offer.” “Great,” says the second investor. “What’s the bad news?” “They want $500 cash down!”

Where Do I Find a Good Lender?
Before you get a good loan, you must get a good lender. These days they are everywhere. You can go to a single-source lender such as your bank or your credit union. Or a multiple-source lender such as a mortgage broker.
The mortgage broker has the advantage because he or she solicits loans from a wide variety of lenders, including banks, insurance companies, and pools of investors. Often a mortgage broker can match you up with just the right lender for your needs.
Ask your real estate agent for a mortgage broker recommendation. Also, check with any friends, relatives, or associates who recently bought a home. Chances are they used a mortgage broker and can recommend (or steer you away from!) a mortgage broker. As a last resort they are listed in the yellow pages under Mortgage Brokers. (Note: A mortgage banker may not make loans directly to consumers. Look for a mortgage broker.)



Also consider online mortgage brokers. Check a good search engine for them. Also, look into:
http://www.eloan.com
http://www.quicken.com
http://www.lendingtree.com
Will a Lender Give Me 100 Percent of the Purchase Price?
Just a few years ago the “standard” down payment on a home was 20 percent. That’s $40,000 on a $200,000 property, a lot of money for most people.

How to Get a Lender to Put Up All or Most of the Money
Today, however, with new financing available from Fannie Mae and Freddie Mac (the “big brothers” of financing who buy most of the loans that lenders and others make on the secondary market), that’s all changed. Today you can easily get financing for 90 percent of your purchase. Depending on your financial situation, you may be able to get 100 percent, sometimes even 103 percent of financing (to help pay for some of your closing costs)! These are called “conforming” loans. (They conform to Fannie Mae and Freddie Mac underwriting standards.)
Is there a catch?
Of course there is! You have to meet specific guidelines set up by the two giant secondary lenders. Generally speaking these guidelines are as follows:
Underwriting Guidelines for “Big Brothers:” Fannie Mae and Freddie Mac Loans
■ Maximum loan amount (as of this writing) is $322,700
■ Must meet strict credit guidelines including a strong FICO score (see below)
■ Must meet strict income guidelines
Where do you get this “miracle” financing? Almost any bank, mortgage broker, or other large lender can handle it for you. (See Chapter 4 for more details on locating a good lender.)

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Choosing Between a Single-Family, Home, Condo, or Co-op

For many people, there is no choice to make. They simply want a single-family house and nothing else will do. Others demand a condo or co-op and will not consider an alternative.
Most people, however, at least consider their options. If homes are expensive, will a condo/co-op be cheaper? Will prices appreciate (or drop) faster in a condo/co-op than a single-family house? Are there any real differences?

Price Appreciation in Condos versus Single-Family Homes
Going back about 50 years, the rule of thumb was that when prices went up, condos were the last to appreciate. When prices fell, they were the first to go down. That’s changed.
Today, in many parts of the country, condominium price appreciation is faster than for single-family homes. Indeed, in many areas condos sell quicker and for more money per square foot than their single-family counterparts.


TRAP—GETTING THE RIGHT COMPARISON
Always compare apples with apples. When comparing prices between condos and single-family homes, do it on a square foot basis. If a 2000-square-foot house is selling for $300,000 and a 1500-square-foot condo is selling for $250,000, which costs more for what you get? The answer is the condo! The condo is selling for $167 a square foot, the home for $150 a square foot. It’s something to consider.

The reason condos are appreciating faster now than in the past is
mainly because there are fewer of them available. Thirty years ago,
builders swarmed to condominium construction and conversion. (A
conversion is where an apartment building is converted to condo-
miniums.) For the builders, the costs were less for multiple family
dwellings, yet the prices they could get were handsome. So they built
condos.
Then came the lawsuits. As it turned out, builders had grabbed
hold of the tail of a tiger. When the roof on one or two units
leaked, the HOA( Home Owners Association) often demanded
that the entire roof over all the units be replaced before leaks
could appear elsewhere. When the ground settled, the HOA
sometimes demanded that the whole building(s) be lifted and a
new foundation poured. Similar problems were found with
plumbing, electrical, mold—all matter of things. Since the
builders often had to guarantee the construction for as long as 10
years (in some cases by state law), they were faced with enormous
liability.
Some builders went out of business. Others took the heavy financial hit. But very few built more condos. In California, as an example, in 1999 there were roughly 20,000 new condo units built. By 2002 that number had dropped to roughly 2000.
As a result, in many areas there is a shortage of condominiums. And, consequently, the price of those available is driven higher.

TRAP—WHEN OLDER MAY BE BETTER
When buying a condo, it’s best to look for units that are at least 10 years old and that don’t have any pending lawsuits. Chances are that any construction problems will have already been taken care of. And you probably won’t have as big a risk of being assessed if the existing lawsuits go against the homeowners.


What Is a Condo?
A condominium, as most buyers know, involves shared ownership. You end up with a deed to the property (called a “fee simple”) and separately own the inside of the unit while sharing with the other owners the grounds, walkways, and recreational facilities—in short, everything outside.
Another way to look at it is as if you were renting an apartment and then decided to buy your rental unit. (Indeed, some condos are converted apartment houses.)
It’s sometimes useful to know that there are actually two sepa-
rate kinds of condominium ownership. The first is the one with
which most people are familiar—you could be on the fifth floor
of a building and you own only that airspace that your unit occu-
pies.
The second is called a townhouse (technically known as a PUD, or planned unit development). Here units are not arranged on top of one another. Rather, you own the ground underneath your unit and the airspace above.