First-Time Homebuyer’s Guide

The hurdles are high, but here aretips for making your first move your best

high premiums–again because of its location. Fortunately, White knew his rights and threatened legal action.

The problem isn’t isolated to New York. This past spring, one of the most reputable insurers in the country, Nationwide Insurance Co., settled charges that it discriminated against homeowners in minority neighborhoods, and promised to devote $13 million toward development in those same areas.

THE DOWN PAYMENT
The next step, dealing with the down payment, keeps many African Americans out of the homeownership game. Most lenders require a down payment of 10%25% before considering your mortgage application. If you’ve got your eye on a place that costs from $50,000-$300,000, coming up with a down payment may seem a bit off-putting.

In recent years, banks and sellers have become more aggressive in finding creative solutions to overcome the down payment hurdle. One example is the National Home Owner Strategy implemented by the FHA. Under one of their programs, first-time home buyers can put down as little as 3% on a house. But be forewarned: the application can seem like an obstacle course, and getting an approval is not always guaranteed. Still, the difference is well worth the effort.

Also, the Housing and Urban Development (HUD) branch of the federal government has launched a program to specifically help newlyweds buy homes. Called the “bridal registry account,” it allows couples to use any monetary wedding gifts toward the down payment on a home. You must open a savings account with one of their 37 participating banks, and the “wedding offering” must be made directly to this account. This fund is not tax-exempt, and there is no timetable on how soon it should be used. (For more information, call 800-CALLFHA.)

PRIVATE MORTGAGE INSURANCE
If your down payment is less than 20%, your lender will get an insurance company to re-underwrite the loan. Called “private mortgage insurance” or PMI, the cost of this insurance policy will be added to the cos
t of the monthly mortgage you will have to pay. And you will pay until you reach 20% equity in the home and the lender can be assured of your ability and timeliness to pay each month.

These underwriters also have the final say about whether your loan gets approved. “A borrower can’t do much to make their application PMI-proof. But if the credit history has not been a problem for the bank, then most likely it won’t be a problem for the underwriter,” explains Gordon Bussey Jr., vice president of Intercounty Mortgage in Westbury, New York. Remember: most banks work with at least four or five insurance companies. So if one turns down your application, most likely one of the others will be willing to work with you.

Fannie Mae is the largest source of home mortgage funds. The Fannie ’97 mortgage plan helps financially responsible borrowers find a broader array of sources for their down payment, including personal savings, a personal loan, a financial gift from a family member or a grant from an employer. Under its standard underwriting, borrowers must make a minimum down payment

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