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Better choices, better mortgages: try these options when searching for an affordable home loan.

One of the keys to purchasing a home is securing the right mortgage. "It's a big decision, but it's not a decision that should paralyze you into fear and inaction," says Pierre Dunagan, president of Chicago-based mortgage company The Dunagan Group. Just how can you get the best deal? First, know your options.

Dunagan recommends that prospective homeowners start by outlining their goals. Will it be your primary residence or will you use it as an investment property? Interest rates vary depending on the objectives of the purchaser. If you are an owner/occupant, you will likely be approved for a lower interest rate than if you plan to rent out your property, because lenders often categorize the latter as a commercial property, which they sometimes view as more risky.

Attending seminars sponsored by mortgage brokers or non-profit groups is also helpful. Homeownership seminars will familiarize you with financial jargon and give you an idea of what questions to ask your lender. Do you understand how your interest rate is calculated? Does it make sense to ask for a seller's concession?

Homeownership workshops may also provide information about financing options or programs specific to the area in which you are looking to buy. There may be a program for first-time homeowners, for example, or your prospective neighborhood may be part of a revitalization effort by your city and subject to lower interest rates.

Your credit rating is extremely important. If you have good credit and are able to save 5% to 10% for your down payment, you'll probably benefit from talking with a loan officer at a bank. If you've had some past credit issues, you may want to contact a mortgage broker since he or she has established relationships with many different lenders.

"One thing about working with a broker is we'll take the time to work with someone to sort their credit issues," says Michelle Cipollone, president of Classic Home Mortgage Corp. in Massapequa, New York. "Depending On your overall financial picture, we have various sources that t we can go to for lending. At one time, there was a misconception that only people with bad credit went to a broker versus a bank, but now it's more like 50/50. As a broker, we work very hard for our borrower and only get paid when the loan closes, whereas people who work at a bank get paid weekly. The bottom line: It's very important to talk to someone you can trust, especially for first-time home buyers, who typically don't know a lot about the home buying process."

Because mortgage brokers are not nationally licensed, it's often difficult to verify their qualifications. Get a referral, or contact the Better Business Bureau.

Do your research

Talk to other homeowners, call lenders, and become as knowledgeable as possible when looking for the right mortgage. Start by contacting the following lenders and government-sponsored programs:

The Fannie Mae Foundation offers free books on homeownership and information regarding credit and mortgage options (;

The Federal Housing Administration provides mortgage assistance for loans made by FHA-approved lenders through the Department of Housing and Urban Development ( FHA also offers down payment assistance programs.

VA Loans. Depending on the region, the Veterans Administration offers 100% financing. Loans for eligible veterans are granted by the VA Loan Guaranty Service. "You still have to take care of closing costs, but if the seller also spots part of that, you're still delivering less out of pocket," says Dunagan.

80/20 Loans. This option allows the borrower to take out a first mortgage on 80% of the purchase price of the home and a second mortgage on the remaining 20%. Doing this avoids PMI, which must be paid to guard against default any time a mortgage loan exceeds 80% of the appraised value of the home. "You don't want to pay for something that you can't write off," says Dunagan, "which is why you do two loans." These loans can be used for 100% financing when borrowers don't have enough for a significant down payment. But be aware that the interest rate will vary depending on your credit rating.
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Title Annotation:housing management
Author:Robinson, Tennille M.
Publication:Black Enterprise
Geographic Code:1USA
Date:Mar 1, 2006
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