Working with a REALTOR® to Buy Your Home

The Advantages of Working with REALTORS®

Working with a real estate professional who is a REALTOR® is in your best interest. Not everyone who sells real estate is a REALTOR®. Possessing a real estate license does not afford instant REALTOR® status--a distinction of which you need to be aware.

A REALTOR® is a member of local, state and national professional trade associations and, as such, has access to a vast array of educational programs, research and resources. By being a member, a REALTOR® subscribes to a strict Code of Ethics, developed by the NATIONAL ASSOCIATION OF REALTORS®. REALTORS® pledge to provide fair treatment for all parties involved, protect the right of individuals to own property and keep abreast of changes in real estate practice through continuing education and interaction with other professionals.

REALTORS® also are committed to higher levels of education and professional development; many REALTORS® have earned professional designations or specialty certifications requiring intensive study. For example, REALTORS® who have obtained the Certified Buyer Representative and Certified Residential Specialist designations have been trained in all aspects of serving as buyers' and sellers' representatives in real estate transactions.

Your REALTOR® can tap into numerous resources, like immediate access to full-time, staff real estate attorneys who can provide objective up-to-the-minute counsel. Your REALTOR® also receives up-to-date information on a wide variety of legal, financial and economic issues and has access to an association with more than 80 years of experience in real estate. And, if things don't work out, your REALTOR® can offer arbitration as a choice instead of lengthy and expensive legal proceedings.

In addition to subscribing to the REALTOR® Code of Ethics and belonging to their local, state and national REALTOR® associations, some REALTORS® have undergone additional training to serve specific markets and client groups. If, for example, you'd like to work with a REALTOR® who is familiar with international transactions or a REALTOR® who works primarily with elderly clients, you might want to find REALTORS® who are designated as Certified International Property Specialits (CIPS) or Senior Real Estate Specialists (SRES), respectively. To find out about the various designations REALTORS® ; click here .

The Right REALTOR® for You

Like finding the right house, selecting a REALTOR® you can trust and comfortably work with is paramount. Just as you wouldn't be casual in the selection of your doctor or your attorney, you shouldn't take the selection of your REALTOR® lightly. Indeed, the best way to find such a professional is through recommendations from family and friends.

Of course, you should interview several REALTORS® before you choose one. If you're selling your home, you should ask the candidates how they plan to market your home, what pricing advice they can offer, and what other suggestions they can provide to further enhance the desirability of your home.

Whether you're buying or selling, ask candidates about the transaction to evaluate their knowledge. Ask for--and check--references. And, finally, ask yourself whether you will feel comfortable working closely with this individual in the months ahead.

BUYING YOUR HOME

The Benefits of Buying

For the vast majority of us, owning a home is part of the American Dream. According to a study conducted by the NATIONAL ASSOCIATION OF REALTORS®, 87 percent of those polled cited owning a home as the number one criterion for defining "the good life." Owners and renters alike considered homeownership desirable for the following reasons: the pride of ownership, their dislike of paying rent, and the ability to change features of their homes to match their individual tastes and needs.

In addition, owning your own home provides a sense of security and well-being that's hard to beat. Home is where we raise our families, have friends over for summer barbecues, paint the baby's room pink or blue, and find refuge from the outside world.

Owning a home offers other advantages as well. For instance, as a homeowner, you have control over your environment. Not only can you change your home to meet your needs, but you also aren't subject to the terms of a lease or a landlord. As a homeowner, you can experience the emotional and financial security that comes from knowing what your housing expenses will be from year to year. Unlike rents, which can increase annually, most mortgages have fixed or capped monthly payments. So, as a homeowner, you can have a much better idea of what proportion of your paycheck goes toward your home. Think of it as the ultimate savings plan.

Bottom-Line Benefits

And it only gets better. Homeownership is the primary component in the creation of wealth for many Americans. Data from Harvard University's Joint Center of Housing Studies illustrate not only that the median net wealth of homeowners is 34 times greater than that of renters, but also that over half of that wealth is generated from home equity. As you pay down your loan amount each month, you accumulate equity, a growing ownership interest in your property. If you need funds, you can borrow against this equity in the form of a home equity loan. Further, interest on a portion of home equity is tax-deductible.

Most homes appreciate in value over time and can be a source of income for you, especially if you've lived in your house for many years. When you retire, you can sell your home if you need the funds or make use of a home equity conversion mortgage.

Finally, don't forget about the significant tax advantages of owning your home. Interest on a home mortgage and property taxes are deductible. For most of us, mortgage interest provides the largest tax deduction. Also, a home is the single most important factor that determines whether you will be able to file a return which takes advantage of the wide range of allowable itemized deductions.

Homebuying Means Getting Back To The Basics

Recently, the CALIFORNIA ASSOCIATION OF REALTORS® surveyed homebuyers to find out what they considered to be important in the purchase of their homes. The largest percentage, 27 percent, considered the mere ownership of a home as the most important reason to buy. Moving to a better neighborhood (17 percent), wanting a larger home (10 percent), and realizing the tax advantages of homeownership (8 percent) were other reasons cited for buying homes. Seven percent focused on investment value as their primary motivation for homeownership. Over the years, your home likely will be the best investment you'll ever make. But more importantly, it will be the place that offers you and your family shelter, security and stability. That's some return on investment.

Working with REALTORS®

For most of us, a home is the single biggest purchase in our lives. The enormity of the financial transaction aside, finding the right home to fit our particular needs and wants is no easy undertaking. Just as you wouldn't buy a car, computer or camcorder without doing some research into various models and prices, you shouldn't consider purchasing a home without some expert advice and guidance. Though some people may think of using the services of a REALTOR® only when selling their homes, a REALTOR® can be invaluable when buying one as well.

For instance, a REALTOR® can help you determine how much home you can afford based on your financial situation, help you get prequalified for a loan, and even inform you about available financing options. A REALTOR® also is an expert on the neighborhood, and can provide detailed information about schools, transportation, local taxes and community characteristics.

Using a REALTOR® is also one way of gaining access to homes listed on the Multiple Listing Service (MLS), an important marketing tool used by REALTORS® to inform other REALTORS® about available properties. That means a REALTOR® can give you information about a wide range of available homes from which to choose.

When it comes to finding out if you're paying too much, a REALTOR® can provide you with market analysis comparing asking and selling prices of homes in the neighborhood. Finally, a REALTOR® can serve as the liaison between you and the seller, bringing to the table negotiating expertise and knowledge about required disclosures and the housing market.

Beginning Your Search: Checklist

Once you've determined that you're ready to buy, it's time to begin thinking about where you want to look. You'll find there are many questions you must answer about the type of house you want to purchase. For example, are you interested in an older home or a new one? How big of a home do you need? Would you like to move closer to certain major roads or freeways? Your REALTOR® can answer many questions about the homes and communities you're considering, and in the meantime, there are myriad resources available for you to begin your research.

Do you want to live in a particular city or neighborhood? If you're a parent, you're probably considering school districts and other child-friendly options like the proximity to parks. If you're relocating to an unfamiliar area, you can contact the city or county government for information about the community. It's a good idea to investigate crime statistics per neighborhood when you're narrowing down the areas of your home search.

Or perhaps location is the reason why you're buying in the first place
to move closer to your work, your spouse's work or your extended family, or to live within a particular school district's zone. As you're probably aware, the location of your home can have a dramatic effect on its price.

You may have experienced growing pains in your current home, which prompted you to pursue buying a new abode. Or you're entering a self-employed profession and need a home office. Consider all your space requirements before you start searching for a new home. There's no reason to waste time looking at two-bedroom condos when you really need a four-bedroom house.

Once you've narrowed down the specifics of your ideal home, where do you find listings? Your REALTOR® has access to thousands of listings in your area through the Multiple Listings Service (MLS). He or she will help you find available homes that meet your criteria. Or, you can start your home search online through www.coloproperty.com

CREDIT INFORMATION

Credit Scores

For many homebuyers, credit is a big consideration in the buying process. In applying for a mortgage, your credit may be the single factor that opens or closes the door to purchasing the home you want at a low interest rate. You may believe you have a strong credit rating but have never actually seen your credit report. Or perhaps you're concerned that past credit problems will come back to haunt you as you apply for a mortgage. Whichever boat you're in, the first step is the same: Obtain a copy of your credit report for a small fee and review it for accuracy. Credit reports are maintained by three credit reporting agencies: Experian, TransUnion and Equifax. It's a good idea to obtain your credit report from all three agencies, since each may contain different information and you don't know which agency will be supplying your report to your lender.

If there is incorrect or missing information that would improve your credit score, report it to the credit bureau. Under the Fair Credit Reporting Act, consumers have the right to review and contest information in their credit reports. Even if your credit report reads exactly like you expected and your credit is in fine shape, going into the mortgage application procedure with peace of mind is worth the nominal fee.

The Role of Credit

Credit is a record of a person's debts and payment history. Credit bureaus compile individual reports of consumer debt through an array of sources, including credit card companies, banks, the IRS, department stores and gasoline companies, and any other entities granting loans. A credit report is a résumé of your financial performance, with information on your payment standing for all the accounts you've held for the past seven to 10 years (seven years for accounts not paid as agreed and 10 years for accounts paid as agreed).

Credit scores, also called "beacon scores," are composites that indicate how likely you are to pay on a loan or credit card as agreed based upon your payment history, amount of debts, length of credit history and types of credit in use. The credit grantor reviewing your loan application compiles your score based on information from your credit report and other data, including your income level.

Fair, Isaac and Company (FICO) developed the mathematical formula for establishing scores. Scores range from 300 (poor) to 850 (excellent), and the rule of thumb is the higher the score, the lower the risk to lenders.

If your credit report contains negative information, such as frequent late payments, repossessions, collection activity or bankruptcy, you may want to wait to apply until after you've improved your credit record. Rebuild your credit by showing strong payment history in the years following any problems. Most lenders prefer for three years to have passed since a foreclosure on a mortgage and at least two years since bankruptcy. Lenders are willing to forgive past black marks on a credit report if you establish a pattern of responsible debt repayment.

Correcting Mistakes in Your Credit Report

Follow the directions of the credit bureau issuing your report. The bureau will contact the source of the information in question and attempt to resolve the dispute. Also, if late payment information is accurate but you have a good explanation (e.g., you were laid off from work or became very ill), you are allowed to add that information to your report.

HOME FINANCING

Pre-Approval vs. Pre-Qualification

REALTORS® recommend that buyers get pre-approved prior to initiating the mortgage process to determine the best type of mortgage for you and avoid rushing into a mortgage decision. Pre-approval is an official agreement by the lender specifying the exact amount for which you've been approved. In order to get pre-approved, you'll meet with a loan officer who'll review your credit history and often suggest a mortgage type that fits your situation. This process requires supplying the lender with various financial documents discussed in the Financing section. By receiving pre-approval before making an offer to purchase, you'll demonstrate your serious intentions and financial ability to the buyer.

Pre-approval is not to be confused with pre-qualification, however. Pre-qualification provides an informal means to find out how much you may be able to borrow. Before setting your price range for how much you can spend on a new home, you may want to pre-qualify for a mortgage.

You can be pre-qualified over the phone by answering a few questions about your income, long-term debt and the amount of your downpayment. Getting pre-qualified gives you a ballpark figure of the amount you may have available to spend on a home.

Downpayments and Financial Assistance

Even first-time buyers are usually aware that they'll be required to make a downpayment in order to secure a home. But what you may not have heard is that within the past decade, downpayment assistance programs have been developed that either lower the deposit dramatically or eliminate it altogether. Before making your downpayment, you'll want to investigate these programs to see if you qualify.

While low downpayments might seem attractive to cash-strapped buyers, keep in mind that the larger the downpayment, the smaller the mortgage loan
thereby allowing you to develop equity quicker. You'll also want to consider that mortgages with less than a 20-percent downpayment usually require mortgage insurance. When determining the size of your downpayment, you may want to weigh the other costs involved, including closing costs and relocating expenses.

You'll find information about the various types of mortgages, application process, homeowners' insurance and more in the Financing section.

THE TRANSACTION FROM START TO FINISH

Making an offer

Now that you've found the perfect home, it's time to get the deal rolling. You'll need to sign a residential purchase agreement, make an offer, possibly put down a deposit, conduct inspections and close the sale. If this all sounds overwhelming to you, don't worry; your REALTOR® will guide you through each step.

Contract to Buy and Sell Real Estate: If you're ready to purchase the home, you must get all the details in writing. The offer begins with a written proposal spelling out your price and any stipulations regarding the purchase. If the seller has agreed to pay part of the closing costs, for example, that needs to be specified in the accepted offer. In addition, sometimes offers to purchase are contingent upon factors like the buyers' ability to obtain financing or the sellers finding housing within a certain time frame.

This agreement contains the comprehensive terms of the deal, including sales price, deposit, closing date, disclosure requirements, inspections, and fees agreed upon by both parties. Other provisions also are included, such as the buyer's final inspection and the method by which all real estate taxes and other bills will be pro-rated between buyer and seller.

Another standard form produced by the COLORADO REAL ESTATE COMMISSION and typically used by Colorado REALTORS®, BC-17 (Exclusive Right to Buy/Buyer Agency) is an agreement between a potential buyer of real property and a real estate broker.

The agreement defines the scope of the tasks and duties to be performed by the buyer and broker leading up to the completion of a real estate sale. The form also provides a written consent to a dual agency if one develops, and informs the buyer that the broker or agents for the broker may be working with other buyers looking for similar properties.

There are ways for buyers to look more appealing to a seller, thereby possibly gaining a negotiating edge. All-cash buyers and those already pre-approved for a mortgage have an advantage. In addition, sellers who are ready to move prefer buyers who don't have a present house to sell first.

An offer to purchase is often followed by a counteroffer by the seller, which can be countered again by the buyer. This is common practice as both sides attempt to negotiate an agreement that meets their individual needs.

Completing the residential purchase agreement is a complicated part of the transaction process that buyers shouldn't enter into without the assistance of a REALTOR®. REALTORS® have access to the standard forms needed and receive updates from their local, state and national associations on state and federal laws regulating agreements. REALTORS® can either answer any questions you might have or refer you to the appropriate authority.

Upfront Fees

In conjunction with the residential purchase agreement, buyers are usually expected to put down a deposit at the beginning of the transaction. If the buyer completes the sale, this money will be credited toward the buyer's downpayment. If the buyer doesn't complete the sale for legal or contractual reasons, the money is typically returned.

However, if the buyer doesn't complete the sale for other reasons, the seller may be entitled to keep the deposit. The U.S. Department of Housing and Urban Development (HUD) advises that deposits should be "substantial enough to demonstrate good faith," usually 1 to 5 percent of the purchase price. Often, buyers may put up to 20 percent down.

Because buyers frequently pay for most inspections, it may be a good idea to investigate the costs of the inspections you plan to obtain before an offer is made.

Home Inspections v. Appraisals

Home inspections vary greatly. Some check the home's structure, construction and mechanical systems, and appliances, which may be transferred with the property. Although different inspectors look for and test different things and may not discover everything that is wrong with a property, obtaining inspections is the best way to become informed of necessary repairs or problems with the home. Be advised that inspectors do not assess the value of your home.

According to HUD, an inspector typically checks the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, the HVAC system, water source and quality, ceilings, walls, floors, and roof.

In addition to being inspected, the home will undergo an appraisal by a trained professional. An appraisal is an opinion of the property's value used primarily to protect the lender's interest. In contrast to home inspections, appraisals are based on past sales data, the location of the home, the size of the lot and the condition of the home. For mortgages insured through the FHA, appraisers must disclose potential problems relating to the physical condition of the home; there are no similar stipulations for non-FHA mortgages. Your REALTOR® may be helpful in recommending a qualified inspector.

Closing

The closing is the day you've been waiting for: when ownership of the home officially transfers from the seller to you! Prior to the closing, the escrow agent will present you with scores of legal documents to review and sign, and you'll be expected to pay your downpayment and closing costs. In addition, a number of other legal procedures must be completed before the sale can close, including approving the mortgage application, clearing the title, appraising the property and recording the deed.

The Real Estate Settlement Procedures Act (RESPA) provides specific protection to buyers before, during and after closing. If a settlement service has referred you to a REALTOR® with whom the service has a business connection, an Affiliated Business Arrangement Disclosure is required prior to closing. You're entitled to receive a preliminary copy of a HUD-1 Settlement Statement, which lists estimates of all settlement fees to be paid by buyer and seller, if you request it 24 hours before closing; the final HUD-1 Statement is a requisite part of closing. In addition, an Initial Escrow Settlement Statement is required at closing or within 45 days of closing. This details the estimated taxes, insurance premiums and other charges that must be paid from the escrow account during the first year of the loan.

Within three days after your loan application is received, your lender must deliver or mail you a "good faith estimate" of the total amount due at closing, as well as a copy of the HUD publication Settlement Costs: A HUD Guide. Closing costs typically are comprised of attorneys' or escrow fees, property taxes, interest, loan origination fees, recording fees, survey fees, first premium of mortgage insurance, title insurance, loan discount points, first payment to escrow account, paid receipt for homeowner's insurance policy and any documentation preparation fees. Fannie Mae estimates that most buyers' closing costs amount to 3 to 6 percent of the sales price.

As with the other components of the buying transaction, your REALTOR® can answer your questions and provide additional information to ensure a smooth closing.

The Mortgage Process

First-time and experienced buyers alike may find themselves overwhelmed by the mortgage process. With so many options
each offering unique advantages and disadvantages -- determining the early steps to take can be baffling.

Before initiating the mortgage process, you'll want to be fully educated. Whether you peruse Web sites or attend a mortgage seminar, there are many ways to find out what to expect. And as always, your REALTOR® can answer any questions you may have, as can financial planners, mortgage brokers, or lenders.

What's in a Price?

As you initiate the mortgage process, you'll want to ensure that your monthly payments fit into your budget. Are you aware that the price isn't the only factor contributing to the amount of your monthly payments? In actuality, the price is comprised of principal, interest, taxes and insurance, which combined, are commonly called PITI. To determine your average monthly payment, lenders suggest devoting no more than 28 percent of your gross income to PITI. Of course, how much home you can afford depends greatly on other factors as well: your income, credit, savings and financing, to name a few variables.

Applying for a Mortgage

Prior to applying for a loan, you'll need several items, including pre-approval information (if applicable), the ratified sales contract, earnest money and a home inspection report. A ratified sales contract is proof that both buyer and seller have agreed on the final purchase deal. It serves as the final contract subsequent to the purchase agreement and any counteroffers.

This contract specifies the amount of your downpayment, the purchase price, the type of mortgage you're seeking, and your proposed closing and occupancy dates.

When you visit your lender, you'll need to complete a Uniform Residential Loan Application. This document asks detailed questions about you, your income, your assets and liabilities, your credit history, and the property you plan to buy. Check with your lender about the additional documentation you'll be required to supply, which can include paycheck stubs, tax returns, bank account statements and other articles.

Your Rights

Under the Real Estate Settlement Procedures Act (RESPA), you're protected from abuses during the residential real estate purchase and loan process. You're also entitled to better information because the law requires the involved parties to disclose costs of settlement services.

RESPA is intended to assist you in obtaining fair settlement services through the disclosure of applicable costs and information, protect you by eliminating kickbacks and referral fees that would unfairly increase the costs of services, and prohibit other practices that increase the cost of services.

Your REALTOR® can inform you of RESPA's provisions in more detail. If you encounter any practices that seem unethical or in violation of RESPA, consult your REALTOR®.

Selecting the Right Mortgage

Once you've arrived at the application stage, you'll need to know what type of mortgage you want and the mortgage amount.

Keep in mind that the type of mortgage you select directly affects the home price you can afford and the amount of your mortgage payments. Your ratified sales contract may depend on your ability to secure approval for the kind of loan you choose.

You've probably already estimated how much money you want to borrow. The best way to determine the exact amount of your mortgage is to base the figure upon the purchase price of the home and the amount of your downpayment. If you're using your pre-qualification from a lender to determine the amount of your loan, remember that pre-qualification is only a ballpark figure and not equivalent to being pre-approved.

Selecting the type of mortgage that will best suit your needs is not a simple undertaking. The right mortgage will depend on many different factors, including your financial situation and how you expect it to change in the future, how long you'd like to keep your house, and how comfortable you are with the possibility of your mortgage payment changing.

For example, a 15-year fixed-rate mortgage can save you thousands of dollars in interest payments over the entire term of the loan, but your monthly payments will be greater. With an adjustable-rate mortgage, you may start with a lower monthly payment than a fixed-rate mortgage
but your payments could increase when the interest rate changes.

The best way to find the right mortgage for you is to discuss your finances, plans and preferences with a mortgage professional, whom your REALTOR® can recommend.

Fixed-Rate Mortgages

Fixed-rate mortgages, the most common type of mortgage, offer consistently stable monthly payments. Your property taxes and homeowner's insurance may increase, but your monthly payments typically won't fluctuate.

With fixed-rate mortgages, you have the option of choosing a 30-year, 20-year, 15-year or 10-year repayment plan. You also may shorten the loan through a biweekly mortgage, thereby allowing you to make the equivalent of an extra month's payment per year. In selecting the length of your repayment, remember that a shorter loan carries higher payments but accrues less interest and allows you to build equity quicker.

Adjustable-Rate Mortgages

The interest rate on an adjustable-rate mortgage (ARM) is dictated by changing market rates. When interest rates rise, your monthly payments will go up, and when interest rates decrease, your monthly payments will go down accordingly.

ARMs often provide a lower initial interest rate than fixed-rate mortgages, attracting people who need lower payments early in the loan in order to qualify for a mortgage. ARMs also can benefit people who plan to move or refinance in the near future or those who expect their incomes to increase in the coming years.

Before applying for an ARM, find out how high your monthly payments can go throughout the life of the loan. An ARM includes two caps or limits on interest rate increases; one cap states the boundary for how high your interest rate can go up during each adjustment period, and the other cap sets the maximum total amount of all interest adjustments over the entire term of the mortgage.

The rates of an ARM typically change once or twice a year, and there is usually a lifetime cap on both the individual rate adjustments and the total amount the rate can change over the life of the loan. By applying the terms of the caps to your mortgage payments, you can anticipate the worst-case scenario prior to applying and determine if this figure is in line with your finances.

Reverse Mortgages

A reverse mortgage is a special type of loan made to senior homeowners that allows them to convert the equity in their homes to cash for living expenses, home improvements, in-home health care, or other needs.

A reverse mortgage takes its name from its reversed payment system. Instead of monthly payments by the borrower to the lender, the lender makes monthly payments to the borrower.

With a reverse mortgage, older homeowners can stay in their homes and maintain or improve their standard of living without taking on a monthly mortgage payment.

To obtain a reverse mortgage, you must meet certain criteria that differ greatly from the qualification requirements for other mortgages. Reverse mortgages are generally limited to borrowers 62 years or older who own their own homes either outright or nearly so. Homes also must be clear of tax liens. And, unlike other mortgages, seniors don't have to meet income or credit requirements to qualify for a reverse mortgage.

Borrowers typically have the option of receiving the reverse mortgage's proceeds in the form of a lump-sum payment, fixed monthly payments for life, or a line of credit. A reverse mortgage's interest rate is usually an adjustable rate that fluctuates monthly or yearly. However, the size of monthly payments that borrowers receive doesn't change.

Balloon Mortgages

Balloon loans are short-term mortgages with some of the features of a fixed-rate mortgage, like low interest rates, but without the benefit of full amortization. As opposed to a 30-year fixed-rate mortgage, balloon loan payments only cover part of what you've borrowed during the term of the loan. At the end of the term, you're required to pay off the loan's balance by refinancing or making a lump-sum payment.

Balloon mortgages are typically five-, seven- or 10-year loans, so they can be beneficial to borrowers who anticipate selling or refinancing their homes in a short period of time.

Many companies offer a conversion feature at the end of the loan's term. For example, the loan may convert to a 30-year fixed loan at the 30-year market rate plus a certain percentage point.

To qualify for a conversion, you usually need to be in good standing with the payments on your balloon loan. Balloon mortgage programs with conversion options are also called a 7/23 convertibles or 5/25 convertibles.

Buy-down Mortgages

Today's mortgage lenders have developed variations on the old buy-down method of offering an interest rate that is 2 percent below the fixed rate for the first year and 1 percent below the fixed rate for the second year, followed by 28 years of paying the regular fixed rate. Buy-downs now charge higher interest in the beginning of the loan to cover the future yields.

For example, if the current market rate for a fixed-rate loan is 8.5 percent at a cost of 1.5 points, the buy-down gives the borrower a first-year rate of 6.5 percent, a second-year rate of 7.5 percent and a third- through 30th-year rate of 8.5 percent. The cost would be 4.5 points.

Government Loans

The Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), and the Rural Housing Services (RHS) are agencies that offer government-insured loans. To obtain these loans, you must apply through a lender that is approved to provide them. All of these agencies require certain minimum standards for the properties being purchased.

Through the FHA, you can purchase a home with a very low downpayment, typically 3 percent to 5 percent of the FHA-appraisal value or the purchase price, whichever is lower. In addition, the FHA's applicant standards are more lenient than conventional loans; you don't necessarily have to have a spotless credit record or a high-paying job to qualify. FHA mortgages have a maximum loan limit that varies depending on the average cost of housing in a particular region.

The VA program allows qualified veterans to buy a house costing up to $203,000, in most cases with no downpayment and at below-market interest rates. Moreover, the qualification guidelines for VA loans are more flexible than criteria for either FHA or conventional loans.

The VA application process is similar to any other type of mortgage loan, and many VA loans can be processed and closed without waiting for credit application approval. To determine whether you are eligible, check with your nearest VA regional office.

The Rural Housing Service, a branch of the U.S. Department of Agriculture, offers low-interest-rate mortgage loans with no downpayment requirements to low- and moderate-income borrowers who live in rural areas or small towns. The RHS also offers programs for home renovations and repairs. Check with your local RHS office or lender for eligibility requirements.

Graduated Payment Mortgage

The Graduated Payment Mortgage (GPM) is another alternative to adjustable-rate mortgages. Contrary to an ARM, GPMs have a fixed-note rate and payment schedule. However, GPM payments typically are set for only one year at a time. Each year for five years, the payments graduate at 7.5 percent to 12.5 percent of the previous year's payment. You may obtain a GPM in 30-year and 15-year repayment schedules.

Borrowers can maximize their purchasing power through the GPM's lower qualifying rate. GPMs also can be attractive in a market with rapid appreciation. In markets with moderate appreciation, a borrower who needs to move during the scheduled negative amortization period could face financial problems.

ALL ABOUT INSURANCE

More than likely, your home will be the biggest purchase you make in your lifetime, so you'll want to protect your investment with the right types
and amounts -- of insurance coverage.

The following is an overview of the kinds of insurance that you may either be required to purchase by your lender or choose to purchase to ensure your home is adequately protected. To determine the exact coverage you need, consult your mortgage professional

Homeowner's Insurance

Homeowner's insurance protects your property from financial losses as a result of fire, burglary and a range of other hazards. This form of insurance guards both your interest and your lender's.

The majority of lenders require basic homeowner's insurance (HO-1), which provides coverage against damage by fire or lightning, glass breakage, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, theft, smoke, and vandalism. It also covers liability for injuries occurring on the premises, which is recommended by most lenders.

If you feel like basic insurance coverage isn't enough, you may opt for broader homeowner's insurance (HO-2), which covers hazards like falling objects, ice, snow and sleet, problems with heating, and plumbing and electrical systems damage, in addition to what's included under HO-1. If you decide on comprehensive homeowner's insurance (HO-3), all dangerous occurrences will be covered, with the exception of natural disasters like floods, earthquakes, wars and nuclear attack.

If you own an older home, you may want to consider HO-8, which covers dwelling and personal property in the event of 11 hazards. Unlike HO-1, this form of insurance covers repairs or actual monetary values instead of rebuilding costs. HO-8 policies are advised for historic homes whose replacement costs outweigh their market values.

Private Mortgage Insurance

Private mortgage insurance protects your lender against financial losses if you default on your mortgage and go into foreclosure. Mortgage insurance is issued by the Federal Housing Administration (FHA), other government agencies and private companies.

If you make a low downpayment, the lender usually will require that you obtain private mortgage insurance that will cover the lender's losses. Mortgage insurance isn't typically required for a mortgage with a higher downpayment, because if a borrower in that situation defaults, the lender should be able to sell the home for more than the loan balance.

After you've built up at least 20 percent equity in your home, you typically can cancel your mortgage insurance. Contact your servicer to learn the cancellation procedure. These guidelines are determined by the issuing organization's investors.

Title Insurance

Title insurance guarantees the simple - yet vital - fact that you own your property and no one else has a claim to it. If you hold a mortgage, you'll be required to pay the one-time premium for title insurance. Title insurance is a wise investment, as it guards against any false claims that may arise.

As opposed to traditional health or home insurance, title insurance protects you against claims referring to before the policy's effective date. A range of claims from the past can be brought against your property's title, including forgery, clerical errors, undisclosed heirs and improper interpretation of wills.

There are two types of title insurance policies: the lender's policy and the owner's policy. The lender's policy protects the lender's interest for the amount of the loan - not necessarily your home's purchase price, if the two figures differ. This type of policy, approved by the American Land Title Association, is issued to institutional lenders. In addition, the lender's title policy covers any losses that the lender would incur if the interest of another creditor, such as a second mortgagor, takes precedence in the event of a foreclosure.

The owner's policy covers your losses or damages if it's determined that the property belongs to someone else, there's a defect or lien on the title, the title can't be marketed, or there's no access to the land. Your owner's policy will stipulate the date by which the terms are effective - the key to your ownership rights.

Most homeowners never have to file a title insurance claim; however, that doesn't mean that you should write this form of insurance off as superfluous. In the event that a third party makes a claim about your property, title insurance can make the difference in retaining your house.

Home Warranties

Home warranties serve different purposes depending on whether your home is newly built or older. If your home is brand new, you'll want a warranty protecting the home's workmanship, mechanical systems and wiring for up to 10 years. For older homes, warranties offering one-year service agreements are common. The terms of coverage vary greatly.