10 keys to financing your home: everything you need to know when you shop for a home - B.E. Guide To Home Ownership—Part 1

Black Enterprise, July, 2003 by Donald Jay Korn

There are instances, however, when brokers can work in your favor. "If your credit history is not great, a broker may be helpful in shopping for the best possible deal," says Holden Lewis, a reporter for Bankrate.com in North Palm Beach, Florida. "However, you need to do some research or get references in order to find a competent, trustworthy broker."

Gumbinger says start locally. "If you already own a home, you might begin with your present lender. Otherwise, ask people you know for leads. Find out who has had a good experience."

Grumbinger warns against finding your loan online. "The Internet can be a great resource for learning about mortgage rates and various types of loans," he says. "However, the lenders you'll find on the Internet are often data mining firms. If you enter your personal information, your name and e-mail address will be sold to any number of marketers for solicitations."

6 RETAIN A LAWYER

Most experts suggest having a good lawyer at your closing. In fact, you should have an experienced real estate attorney examine all paperwork before you make any commitments or sign any contracts. "We recommend a lawyer unless you're thoroughly familiar with not only the mortgage process but also the various filing requirements," says Gumbinger. "These include having the title search done, arranging for the appraisal and inspections, and other tasks that require knowledge of town and state law. If there are problems, it might even invalidate the mortgage transaction. If you don't use a lawyer, who can you call [for help]?"

7 SELECT THE RIGHT MORTGAGE

There are many types of loans potential homeowners can choose from other than the traditional 30-year, fixed-rate mortgage and the adjustable rate mortgage (ARM) that increases or decreases each year. Thirty-and 15-year, fixed-rate mortgages are the most common, says Wilds. "I generally suggest 30-year mortgages," she says. "The monthly payment is lower so you can afford to carry a larger mortgage. Some people, however, prefer the 15-year mortgage, which might have an interest rate that's about a quarter of a point lower." Homeowners who are in for the long haul will save large amounts of interest if they pay off their mortgage in 15 years rather than 30 years.

If you're going to stay in the house for five years or less, says Lewis of Bankrate.com, an ARM is probably the best choice because the initial interest rate will be lower than most fixed-rate loans. "Currently," he says, "3-to-1 and 5-to-1 ARMs are popular because you lock in an attractive rate for three or five years. Then the rate may go higher, year by year, but that won't make a difference if you plan to be in another house by then."

8 ASK ABOUT LOAN PROGRAMS

When she bought her new home, Sly says she got "a loan with a 5.5% rate locked in for the first five years."

Sly's loan officer helped her find a program that required only a token down payment--about $1,000 on a house selling for more than $120,000. Greer found a program for first-time homebuyers that enabled her to purchase a new home near downtown Oakland. "My total outlay was about $10,000," she says. "That's a lot easier to put together than $20,000."