The complete guide to trading up your home - tips on bidding, structure evaluation and using mortgage brokers; includes information on using real estate brokers

Black Enterprise, July, 1994 by Shawn Kennedy

WHEN MICHAEL CUYJET accepted a new position as an associate professor at the University of Louisville, he and his wife, Carol, faced the prospect of moving their three daughters from Maryland to Kentucky. But they're old hands at the home buying and selling game. Career advances had taken them from the Midwest to the East Coast, where they had bought and sold four homes in their 16-year marriage.

But home values had dipped in the Washington, D.C., suburbs where they lived, and the Cuyjets knew it would take every bit of their home buying and selling acumen to achieve their goal: They wanted to leave Maryland with their equity intact and find a home in Louisville that was affordable and comfortable, and that would let them take advantage of any market rise in their new city.

Ten weeks from the day the Cuyjets started, they met their goal and closed on a new five-bedroom home in Louisville. "It worked out as well as we had hoped," says Michael Cuyjet, 46, who approached the entire process in a carefully thoughtout, methodical way.

It could certainly be worth your while to buy a home. Even as interest rates creep up, you can still gain from increased purchasing power, according to the National Association of Realtors. The NAR's affordability index, which measures the average wage earner's buying power, shows that home buyers are finding it easier to purchase homes than when the market was in the doldrums.

Consider this: In 1991, the median price of a home was $100,300, and 30-year, fixed-rate mortgages stood at 9.3%. Back then, a family needed an annual income of $31,825 to qualify for a loan and, on average, spent $663 a month on a mortgage. By 1993, the inflation-adjusted median price of a home had risen to $106,800, but houses were more affordable because of the substantial drop in interest rates.

As a result, during 1993, interest rates on fixed-rate loans were averaging 7.16%, and it took only $27,727 in annual income to qualify for a conventional mortgage. The NAR's index showed that buyers were paying $578 a month on mortgages for that $106,800 home.

Nonetheless, the housing market's roller-coaster ride in recent years has made buying and selling a slippery slope for even the most sophisticated owners. To help you navigate your way along the ridge, here are tips from real estate professionals and consumers on how to get the most for your home buying dollar in today's uncertain climate.

SEE YOUR BANKER FIRST

While houses may be more affordable now, mortgage options are a lot more complex, which means it may be smart to find a banker before you find a real estate broker. The recent jump in interest rates has caused lenders to offer a plethora of mortgage options in order to keep customers coming in the door. As a result, mortgage packages advertised in your daily paper one week may be obsolete by the next. You'll want to spend time comparing the real cost of those come-ons early in the process.

Careful shopping is more important than ever, even if you excelled at the game the last time around. You'll be choosing from among a dizzying array of mortgage options, each with its own advantages and disadvantages, depending on your financial and personal circumstances.

Sherrian E. Johnson, a loan officer with CFC Mortgage Corp. in Colton, Calif., advises buyers to focus on two factors when choosing a home loan: how long you expect to own your new home and whether your income is likely to increase, decrease or remain the same during the time you own the house.

A variable-rate loan makes more sense for some people. "Buyers who don't expect to be in their homes for more than three or four years would probably sell before having to risk [a] substantial rise in rates," says Johnson. On the other hand, if you expect to have an added expense, like college tuition or an anticipated drop in income from a pending retirement, you'll need the security of a fixed-rate loan.

Be aware that some lenders are currently offering very low teaser rates on variable-rate loans. These discounts--often as low as 2% below the real market rate for the length of the loan--can be a valuable way for someone with high upfront costs to get into a home. But as enticing as these teasers may be, any buyer who takes on these introductory rates must be prepared for the impact when the real rate kicks in one to five years later.

If you go with an adjustable, of course, remember to pay attention to the mortgage cap. Currently, the standard ceiling is no more than 2% on any rate adjustment and no more than 6% for the life of the loan. Be sure you can handle it if the loan does, in fact, move up to those caps.

Another advantage to looking for the right loan before shopping for your home is that it can give you an idea of how much house you can afford to buy. Lenders offer to pre-qualify buyers, which has some distinct advantages. Many lenders will analyze your income and fixed expenses, such as car loans or credit card payments, in order to determine early on the maximum sum they'd be willing to lend you under various mortgage terms. They'll also let you know what percentage of the selling price you'll need to fund, assuming the assessed value of the house matches the contract price.