FINDING YOUR WAY HOME ANALYSTS EXPLAIN HOW TO NAVIGATE THE DIZZYING PATH TO A SUITABLE MORTGAGE PLAN.

Byline: Evan Pondel Staff Writer

Brandon Scott is well-versed in terms of what mortgage lenders deem ``creative financing.''

He recently moved back to the United States from Canada, and ended up running into a morass of paperwork when attempting to buy a home in Alta Loma.

Scott's credit was solid, but the range of products and doublespeak from lenders proved as burdensome as finding a home.

``In the eleventh hour a mortgage lender wanted even more down,'' said Scott, 30, who also had a difficult time proving his financial history because he spent the last decade outside the country. ``I had enough playing this game.''

The same goes for many other home buyers who have encountered an inflated market and a confusing array of loan options. Fixed rate. Adjustable rate. Interest only. Conventional. Fifteen-year. Thirty-year. Even the prospect of 40-year loans exists. How to sort through it all?

Analysts say the safest loans provide home buyers with ample breathing room without breaking the bank further down the road. While 30-year adjustable rates have become a popular option, particularly among first- time buyers looking to reduce their mortgage payments, it's not right for every buyer.

``The popularity of these products ebbs and flows based on the level of long-term and short-term interest rates,'' said Doug Duncan, senior vice president and chief economist of the Mortgage Bankers Association of America, a Washington, D.C.-based organization that represents the real estate finance industry.

The MBAA forecasts that the 10-year Treasury yield will rise by the year's end, perhaps even warranting a shift from adjustable rate mortgages to fixed rate mortgages. The theory is that the 10-year Treasury yield acts as a barometer for mortgage rates. Though the relationship isn't always dependable, Duncan said it's likely that short-term interest rates will rise, increasing the appeal for longer-term fixed rate mortgages.

That's even better news when you consider rates on 30-year mortgages have declined every week this year. Interest rates on 30-year fixed-rate mortgages have not risen above 6 percent in at least six months, which has helped to keep the housing market bustling, said Frank Nothaft, Freddie Mac's vice president and chief economist. ``As a matter of fact we are forecasting that long-term mortgage rates will average only about 6 percent for the year.'' Of course, with higher home prices it might be worthwhile to opt for a 40-year mortgage, potentially lowering the monthly payment by $200 or more.

The downside of a 40-year is that homeowners who want to buy bigger and better homes after a decade will not build up enough equity.

But if you plan on never leaving your home, Lynne Dewar, a senior loan officer at Lenders Direct in Rancho Cucamonga, said, the 40-year mortgage is a good idea. ``It definitely opens up some opportunities for folks. And being able to save a couple hundred dollars a month could mean getting into a house that costs $30,000 more,'' she said.

That could prove helpful considering a majority of Southern Californians cannot afford a median-price home in their area. Only 17 percent of households in Los Angeles could afford to buy a home in the same area two months ago. In the Inland Empire, affordability was at 19 percent in December, down from 33 percent a year ago, according to the California Association of Realtors.

Amid waning affordability, Fannie Mae decided to gauge demand for the 40-year mortgage by partnering up with credit unions two years ago. But with interest rates at historically low levels, the Washington, D.C.-based financier of mortgages found that the 40-year isn't as popular as previously anticipated.

``Borrowers simply haven't needed to resort to a product of this type,'' said Sandy Cutts, a spokeswoman for Fannie Mae.

The company is also in the process of determining whether they want to ``tweak their (40-year) pilot program,'' potentially eliminating the product from Fannie Mae's investment portfolio. ``These are all decisions that are currently being worked out,'' Cutts said.

But when you sit down and do the math, the 40-year's value is difficult to justify. For example, a $300,000 40-year fixed rate mortgage compared with a five-year adjustable rate mortgage could reduce a monthly payment by nearly $60. Even if the rate on a five-year mortgage is at least 1.25 percent points lower than a 40-year, the borrower would likely augment the equity by several thousand dollars.

``I find most people who are looking to minimize their payment are looking at the interest-only 30-year,'' said Ron Gandorf, president of Central City Mortgage in Fontana. ``Everyone is trying to keep up with inflation these days.''

Zero down has also become a popular option for those with little savings to spare. Even though airtight credit is a must to qualify for a zero-down loan, Gandorf said it is a savior for younger families who can barely afford a home based on their personal cash reserves.

``Sure, the monthly payments are higher. But if a first-time home buyer has a good FICO score it's a lot easier to get into a first-time home buyer program,'' he said.

Eventually, Brandon Scott settled on a 30-year fixed mortgage. He wouldn't disclose how much he put down, although he did say it was more than 10 percent. As for his interest in the 40-year, ``it wasn't something ever presented to me,'' he said.

When searching for the perfect loan, real estate agents suggest talking to as many lenders as possible. The reason: It's a competitive industry, and many will go to great lengths to procure your business.

Ron Gent, an agent with 21st Century in Upland, said a lot of home buyers walk into his office uninformed. In an average year, Gent has to turn down nearly a dozen people who lack the financial girth to afford a home.

``I don't like to do that. So I suggest that you determine what you are qualified for before embarking on (a search for) that dream home,'' he said.

Boiling down what you can comfortably afford on a monthly basis should be your primary objective. ``Then you can determine whether a 40-year is right for you. And because many people don't have enough money to afford a home right away, you have to be extra careful that you aren't taken advantage of for several thousands of dollars with the manipulation of a pen.''

Evan Pondel, [phone]

evan.pondel(at)dailynews.com

CAPTION(S):

drawing, box

Drawing:

(color) no caption (Mortgage signs)

Jon Gerung/Staff Artist

Box:

40-YEAR VS. 30-YEAR MORTGAGES

Sources: Daily News research

Daily News