Smart Moves by Ellen James Martin


Rents are rising in many areas -- making homeownership a more alluring alternative to renting. That's a major reason mortgage specialists are now predicting an uptick in home-buying activity among prospective first-time buyers.

"In some areas it's now less expensive to buy than rent. Although the real estate market still isn't super robust, more buyers are moving off the sidelines," says Ray Eickhoff, a regional vice president with Fairway Independent Mortgage, a mortgage banking firm with offices throughout the country.

Eickhoff says the widespread view that the economy is gradually recovering is the primary factor strengthening many neighborhood markets.

But Scott Lanoff, a mortgage broker who heads his own firm, American Success Mortgage, cautions that all purchasers can expect a rigorous mortgage application process, given that lenders now operate in a much more demanding regulatory environment compared to the period before the recession.

"I've been in the mortgage field 27 years and it's never been harder to get a home loan," he says.

Keith Gumbinger, a vice president at HSH Associates, which tracks mortgage rates countrywide, says there are currently many fewer companies in the mortgage market currently. Even so, he says homebuyers can still command the attention of many good lenders.

Here are a few pointers for prospective first-time homebuyers:

-- Get an early jump on the mortgage search process.

The mortgage market is always evolving. In addition to the traditional 30-year fixed rate mortgage, new loan products are constantly developed by the industry.

Most innovations involve adjustable-rate mortgages of one type or another. But they can differ dramatically in their names, terms and conditions.

Gumbinger says both first-time buyers and repeat purchasers need as much lead time as possible to educate themselves on mortgage basics, to sort through alternative home-loan choices and to compare lenders and rates.

Gumbinger suggests mortgage shoppers seek consumer information through his firm's website, (

Of course, most home-loan applicants now favor traditional fixed-rate mortgages. But Gumbinger says buyers who expect to stay in the home they purchase for just a few years might consider a so-called "hybrid loan" on which the interest rate stays firm for three to 10 years before adjusting to market levels, because the initial rate would be lower than that of a fixed-rate mortgage.

-- Hold out for a lender willing to give you face time.

Gerri Detweiler, a consumer finance expert and author of "The Ultimate Credit Handbook," encourages first-time buyers to seek a lender who will instruct them on the intricacies of home loans.

"A reputable mortgage lender should spend at least 30 to 60 minutes with you on the fundamentals and should help you to begin fixing flaws on your credit reports," Detweiler says.

How do you find a sympathetic lender?

Gumbinger says real estate agents are usually a good source. But he says you should look beyond their suggestions, also asking friends or relatives who recently purchased a home.

-- Arrive at the lender's office well prepared.

To streamline the process, there's no substitute for gathering key documents in advance of your meeting. Ideally, these should include recent pay stubs, your latest W-2s, and a couple of years' worth of federal tax returns, as well as bank and savings account statements.

"They're necessary to help your lender set the upper limit on how much you can afford, a process known as 'pre-approval,'" Gumbinger says.

By providing these documents early, your lender can quickly calculate your top borrowing limit and also assess your eligibility for various lending programs.

-- Look into your credit standing to gain the best available mortgage rate.

Under federal law, you're entitled to one free credit report each year from the three largest credit bureaus" Equifax, Experian and TransUnion. You can easily request these online (

In addition to your credit reports you'll want to access your "credit scores." Such scores -- which draw on data from the credit bureaus -- seek to provide lenders with a quantitative measure of a person's credit risk. Most lenders still use the scoring method pioneered by FICO.

In most cases, you'll need to pay a fee for your credit scores. One way to obtain them is through the FICO website" You can also receive credit scores through the three large credit bureaus. FICO scores range from 300 to 850 -- the higher the score, the more likely you are to get the best available rate.

As soon as you've chosen the home you want to buy, it's time to get serious about making your mortgage application. And with your credit scores in hand, you can readily begin the process of comparison shopping for rates.

As Gumbinger says, you may wish to begin the rate-shopping process with the lender who tutored you on the basics. But he strongly suggests you extend your rate search beyond the first lender. He also recommends you consult community banks and credit unions.

"Try to gather at least 10 to 12 rate quotes before you applying for a mortgage. But always remember you're not only shopping rates. You also want quality service," Gumbinger says.

(To contact Ellen James Martin, email her at

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