A few months ago, we started. By looking online at prime real estate in our favorite places to live--near the beach, in the country, and, as a last resort, in suburbia. We then looked at our favorite architectural styles--the farm and ranch houses, the Mediterraneans, the twenty room Victorians. Then we sought those houses that had the best additional accommodations--the cement ponds, the fireplaces, the picket fences and gables and triple-car garages. Then we succumbed to the reality of having to buy a home that we qualified for, that was affordable, and that would be a real investment. But since we had never dealt in such high (and complicated) financing before, we took a first time home buyer's class, learning as much as we could about pre-approval requisites, purchase prices, and more. Much more.

While the information was stunningly helpful and the instructor brilliant, engaging, and most informative, the amount of information was overwhelming, filling as it did our notebook in three short hours. So I will carefully slog through the material here, separating what I recall best from that which is too daunting, so you won't be as daunted, and so you will benefit from my offering what I hope will be information in your best interest--for acquiring your own home mortgage loan and your own home.

The first notes we took involved goals:
Ø Save for a down payment
Ø Save for closing costs
Ø Get foot in the door by maximizing buying power
Ø Obtain financing

For the down payment, it was recommended we put down 20% of the cost of the house. Then again, some people asked about putting down less than this. Well, first, the 20% down recommendation (added to the 80% you would borrow) lends itself to what is called the LTV, the Loan to Value ratio. If you make the LTV change by putting less money down, then you need to pay PMI.

PMI is Private Loan Mortgage Insurance, which lenders require so you won't (or in case you do) default on your loan. If you do decide to go this route, putting a small down payment and paying PMI, you can count on paying anywhere from $25 to $65 per month per every $100,000. Keep in mind that the smaller your down payment the higher your PMI; but also keep in mind that if you use a PMI method (which you do not get to choose, but which is standard anyway), once the PMI payments reach a total of 73%-78% of the original value of the house, your lender will drop the requirement for PMI.

One way to get out of or around the PMI is to do an 80/15/5. That is, for example, on a $100,000 house, get an $80,000 loan, put $5,000 down, and get pre-approved for a 2nd mortgage loan of $15,000.

The closing costs are also calculated by your lender and must be (according to law) disclosed to you before the deal is closed, as both the lender and you are responsible for paying the closing costs--non-recurring (one-time) fees that are incurred in the transaction of the house changing hands that include, typically, an attorney's fee, escrow fees, charges for title insurance, credit report fees, appraisal fees (charges for inspection and surveying), lender's fees, and an origination fee.

Maximizing buying power is just as it sounds: you want to empower yourself as the buyer in every way possible, considering your many options (which gives you power), going for the historically low rates (which also gives you power), and using intelligent buying strategies (which also empowers you). Here are a few notes on those strategies possible today:

Try for a No Closing Cost Loan. The dynamic is the same in (almost) every house-buying deal: there is a buyer, a real estate broker, and a lender. While the lender or the broker usually pay the closing costs in a refinancing situation, it doesn't hurt to try for a No Closing Cost Loan as a new home buyer.

Consider a Hybrid Loan. While there are many kinds to choose from, the typical mortgage loan could be the oft-recommended thirty-year fixed loan. However, with a Hybrid Loan, you pay for a shorter than 30-year period and, because the amount is still amortized, you pay a manageable monthly payment that has a lower rate of interest over 3, 5, 7, or 10 years. At the end of the fixed payment term, a new loan is figured (or rolled over), and you continue paying--instead of paying a huge balloon payment.

Take advantage of the ARM teaser. The ARM (Adjustable Rate Mortgage) teaser is designed to bring in buyers: the teaser is an offer by the lender for a low introductory rate...which adjusts (higher) in later years. But when the adjustments are about to hit, you choose to refinance (at a lower rate, of course), not being dinged by the escalating rates.

Try for mortgage pre-approval. Find a lender who will do a no-cost pre-approval, which will save you time and money.

Seek out a lender with the most flexible underwriting requisites. While your positive credit report and long-term employment (7 + years at one job) standing are boons to getting pre-approved, you can offer additional verification of, for example, your spouse's (co-payer's) employment history in a previous location (where you were before you moved to new home area).

Find a lender who offers a variety of mortgage packages. The more variety, the better chance you will find the best approach for you and yours. For example, you may prefer a Jumbo Fixed Rate Mortgage, a non-conforming mortgage, which goes beyond the limits set by Fannie Mae and Freddie Mac, allowing you to exceed the borrowing limit. Or you may depend upon the lower monthly and interest rates of the Balloon Mortgage, which has a thirty-year fixed term that requires that half-way through (at the 15 year mark) you pay a substantial balloon payment.

Given the preliminary information here, we are looking at houses now, for the time is now (not when the market "bottoms out", for this may be the lowest houses will get, costwise). And we will interview many lenders and brokers, ask many important questions, and walk in and out of whatever we decide empowered--better informed and better prepared, thanks to the homebuyer's class. We hope you will be, too.

About The Author
Valerie Kerr is a successful financial writer and provider of excellent tips and advice on home loans and auto loans. Her numerous articles offer valuable insight into the world of loans.

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