| Family Management

Lenders crafting loans to fit everyone

In the dozen years that Dave Craig has been teaching home-buying seminars, his message for how to best acquire that coveted mortgage loan has never wavered:  “Credit scores drive the train.”

“Strong credit will always help you get a loan,” says Craig, a mortgage broker with Seattle’s First Horizon Home Loans. “If you have it, there are definitely some options out there for you.”

Options include the conventional 30-year fixed-rate loan, where the interest rate remains the same for the duration, and the more recent 40-year fixed-rate loan, which allows for lower monthly payments with more interest tacked on at the end.

With the real estate market so competitive, lenders are offering more options than ever to those with poor credit. And that’s where Craig and mortgage broker Nancy Glover say it’s imperative to be cautious and questioning in the pursuit of a home loan. Shop mortgage companies and compare. Don’t be afraid to negotiate. Never borrow more than you need. And make sure you understand the loan that you’re signing.

“We’ve seen a real change in the lending industry, as banks have really stepped up to the plate to help families get into homes,” says Glover of Bellevue-based Legacy Group.

But the surge in loan applications also has introduced lenders that push risky loans, bringing on a steady stream of foreclosures attributed to adjusted-rate mortgages that have left homebuyers questioning what they really signed up for.

High-risk options include adjustable rate mortgages (ARMs), which provide a fixed interest rate for five years, but can skyrocket in the sixth year. Craig says his classes point out that interest rates for a five-year ARM and a 30-year fixed are not that different.

Craig also tells people to steer clear of an option ARM loan, which provides a monthly statement offering four payment options: 30-year amortized, 15-year amortized, interest-only and minimum. “It sets them up to fail,” he says.

A popular alternative in recent years is the zero-down, interest-only loan. Depending on the terms of the agreement, borrowers pay only the interest on the loan for periods of five, six or 10 years, allowing affordability early, but ensuring a steep rise in payment amount when the principal kicks in.

“You know what your payment will be when you’re done [with the interest-only payments], and you can always make payments on the principal as you go,” Glover says. “In this market, it allows you to take advantage of a home’s appreciation.”

But there’s always the gamble: Will the house be worth more than the mortgage amount when the principal comes due?

“You have be take a good look at the reputation of the mortgage broker,” says Seattle real estate agent Edward Krigsman. “It’s important to find someone who’s smart in how they advise you. For instance, is there a salary increase in your future? Buy something with a plan for the long term.”

Craig, a 20-year veteran of the mortgage trade, says he cares about more than putting his clients in a house.

“I can approve your loan to more than you’ll be comfortable with,” he says, “but you won’t be able to afford Top Ramen. Just because I get you approved, doesn’t mean I’ll be making the payments for you.”

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