It makes sense for singles to buy a house. Here's how...

By Kerri S. Smith

Lisa Monroe figured she'd become a homeowner a few years after she and Mark married, once their careers were solidly established and right before the kids came.

Then her fiancÈe fell in love with a dental hygienist during his annual teeth-cleaning appointment. Monroe gave back the ring and forgot about the white picket fence for a while.

Years passed. Good years, productive years, often fun years. Monroe's career took off, affording enough money for a starter home. But somehow, she just couldn't shake that expectant feeling, the conviction that soon "he" would come, the magical man of her dreams, and they would buy a house together. So she spent money on exotic vacations and gorgeous clothes instead of bricks and mortar.

A chance conversation with a friend brought Monroe's house dreams back into focus. The friend, a single mom, mentioned she was putting her small home up for sale, and planned to use the considerable profits to buy a spacious beach house.

She went on to explain that in just 10 years, the home's value had grown 125%. All those years Monroe was paying to rent expensive, urban apartments, her friend was paying a much smaller mortgage - and making money to boot.

"You know, I never, ever intended to continue renting into my thirties," Monroe now says. "And it really burns me to think how much money I wasted on apartment rent, given the way the housing market has skyrocketed."

This year, with interest rates the lowest in almost 30 years, Monroe is one of the estimated 6.6 million people or families shopping for a casa nueva. Many of them, like Monroe, are first-time homebuyers.

Especially for the first-timers, the choices can seem overwhelming. Bank or mortgage company? Fixed or variable rate loan? Thirty-year term or a balloon payment with a shorter term? Build or buy? Townhouse, condominium, single-family detached, loft, cabin or split-level? And the biggest question: how much house can you afford?

Probably not as much as you'd like to own, given that the average U.S. home now sells for $131,000. But that doesn't mean there aren't plenty of great properties out there for a lot less, especially if you're willing to buy a fixer-upper and do some fixin'!

The good news, according to Mike Cohen, a real estate salesman (also called "Realtor") with RE/MAX in Elk Grove Village, Ill., is that there are lots of special programs for newbies.

In fact, today's consumers have more choices than ever before when it comes to getting the bucks to buy. Cohen says first-timers can access loans through the government and formal money lenders, like banks, credit unions, saving and loan associations and mortgage companies.

First, a couple of basics: the money you borrow to finance a house is called a mortgage. Lenders use a formula to figure out how much money they think is safe to loan, based on your employment, income, credit history, debt load and tax returns.

While most government programs encourage borrowers to commit no more than 28% of their income to a monthly mortgage payment, nowadays some lenders will go as high as 50%.

The average down payment used to be about 20% of the house's price, but that's dropped considerably. As lenders loosen their guidelines, some have begun offering zero-down loans. And the Federal Housing Administration (FHA) loans, which are the most popular with first-time buyers these days, require only 3% down, says Suzanne Grinley, a loan officer with Norwest Mortgage Inc. in suburban Los Angeles.

"There's a loan out there for just about anyone," Grinley says gaily. She counts off the options, which besides the FHA include special loans for particular groups (for instance, state employees, teachers or veterans) and for people buying in specific areas (inner-city "redevelopment areas" or under-populated, rural areas). There are also loans for low- and moderate-income borrowers through the Fannie Mae program, which is especially understanding of past credit problems.

Grinley bought a house with a FHA loan five years ago, following a divorce. In addition to the low down payment rate, the FHA program allows buyers to accept untaxed "gift funds" from relatives to put towards the down payment. The cash donor, in this case Grinley's dad, simply makes out a "gift letter" stating the amount of money being given.

"FHA is the best first-time buyer arrangement we have found, and the one we recommend the most," she confides.

Keep in mind that your mortgage payment includes more than just the loan payback. Along with loan principal, each payment will include loan interest, property tax, homeowner's insurance and, if your down payment was less than 20% of the purchase price, mortgage insurance.

RE/MAX's Cohen advises first-timers to be sure to ask about fees before settling on a lender. For instance, a mortgage broker may be paid by the lender, the borrower, or both. He also cautions against borrowing more money than you need, in order to avoid being strapped by high mortgage payments, a common condition jokingly referred to as "house poor."

Want to see how much of a mortgage you qualify for? Call a lender and ask to be "pre-qualified" over the telephone. If you're computer savvy, log onto www.realtor.com or www.homepath.com and use their mortgage calculators to see how many bucks you likely will qualify for.

Before you get pre-qualified, it's smart to order a copy of your credit history report, just to see if there are any errors or negative entries under your name. Lenders usually won't finalize a loan if anything fishy is on the credit report.

In most cases, a telephone call to a credit agency will bring a report to your mailbox within days. Reports cost around $8. You can mail a request, or pay with a credit card over the phone or via the Internet. If you've been turned down for credit in the past 60 days, the report is free.

Back to the pre-qualifying process: Once a lender has agreed to loan you money, you get a "pre-qualifying letter" documenting it. With the letter, you can pounce immediately when you spot The Dream House. Moving fast is essential in hot housing markets like suburban Los Angeles or Seattle. In these wildfire markets, desperate buyers get into bidding wars, sometimes offering $10,000, $20,000, even $30,000 above a house's asking price.

Lenders will ask what sort of loan interest rate you're looking for, fixed or variable. If you go for a fixed rate, you pay the same principal and interest payments every month.

Want to see how much of a mortgage you qualify for? Call a lender and ask to be "pre-qualified" over the telephone. If you're computer savvy, log onto www.realtor.com or www.homepath.com and use their mortgage calculators to see how many bucks you likely will qualify for.

Variable rates are tied to one of several indices determining how and when the rate changes. Variable loans go by another name, "adjustable rate mortgage" or ARM. Most loans are 30 years in length, Cohen explains, but shorter loans, with a large "balloon" payment at the end, also are available.

Realtor Linda Ransom of Mission Woods, Kansas, says loan killers for first-time buyers are unemployment and bad credit.

"We look at the last seven years of your credit history, the last two of which are most significant. It's surprising how many people don't realize that things that haven't been resolved, like a repossessed car, overdue credit cards, forgotten student loans, court judgements or disputed child support payments can cause trouble when they're trying to buy a house," Ransom says.

Let's look at Monroe's situation. She earns $3,200 a month before taxes. She pays $500 a month for a car payment and credit cards, and has saved $5,000 for a down payment. Her credit is good. According to a lender's calculation, she could afford a house costing up to $83,000 (mortgage total $78,822).

Assuming today's interest rate of 7.86%, with a 30-year fixed loan, her monthly mortgage payments would be $697. That's about $150 less than her current monthly rent. At year-end, her tax deduction will be significant. For the first five years of the loan, while she's paying off much of the loan's interest, she can write off at least $10,000.

Ransom suggests first-timers like Monroe shop around for the best mortgage deal. Ideally, they should take a class on home buying, to learn the basics and avoid getting ripped off. Such classes are offered through adult-learning programs, community colleges, and even city recreation centers.

Another way of going about the whole process is to begin with a Realtor, who usually works in tandem with a particular lender and can help you get set up with a loan.

It's a good idea to talk with at least three professionals in your area before settling on one. Realtors make their money by taking a percentage of any house sold or bought for a client. Realtors typically ask the client to sign a contract specifying the percentage and the term of the agreement (six months, for example). This contract basically says, "if I, the Realtor, run around and find a house that you eventually buy, I get a cut."

Any experienced Realtor can speed up your house search by tapping into a house-for-sale database from the Multiple Listing Service, and steering you towards properties that fit your needs.

Once you've found a house you like and can afford, it's time to make an offer. But first, drive around the neighbor. Walk down the alley behind your house. Does it seem safe, tidy, well maintained? If possible, talk to neighbors. Is this the kind of place you want to live?

The lender will do a property appraisal. To protect your interests, hire a professional housing inspector to take a look at the property before you commit yourself. But remember that just because an inspector has OK'd the house, nothing is guaranteed.

Daisy Gibbons and her husband found that out the hard way. Within months of buying their picturesque Victorian home in Denver, the roof began to leak. Turns out the whole thing had rotted and needed to be replaced. Soon they noticed ominous cracks in the walls. It seemed the foundation was sinking and splitting the structure of the house. They paid an enormous amount to have the house jacked up and a new foundation put in.

The final insult: the aging furnace was "red-tagged" by the gas company's meter reader. When the new furnace was going in, the installer reported that the basement pipes were covered in asbestos, now considered a hazardous material. The Gibbons forked over more money to hire a hazardous waste disposal company to tear it out and dispose of the asbestos properly.

In the most competitive markets, it's not smart to underbid the stated price for the house. But if you think there's some wiggle room, or if your Realtor knows the seller will come down, offer less than the full price. And remember, if you put down earnest money (similar to a deposit), make sure it's fully refundable if the deal doesn't close. Earnest money remains legally frozen, in an escrow account, until closing.

If you don't want to buy a "used" home, consider working with a homebuilder. You can tour models, pick a lot and see your home grow from the ground up, or buy a partially-built, completed or even model home if the development is closer to being built out.

As you get closer to your very own front-door key, you may hear a puzzling word: "points." A point is a fee equivalent to 1% of the loan. You pay them to the lender, the mortgage broker or both when the deal is sealed. Sometimes they'll charge fewer points in exchange for a higher interest rate, Cohen says.

FHA loans often require that you pay one point up front, when you apply for the mortgage. This covers the lender's fees for doing all the government-required paperwork. Today, conventional loans (non-government) often come point-free.

Closing costs must be paid - in cash - when deal closes, and often include an origination fee, attorney's fee, taxes, any amount placed in escrow and whatever it costs to get the title insurance and survey done. Closing costs usually total 2-5% of your loan.

"Don't be intimidated by this process," RE/MAX's Cohen urges. "When I go into a car dealership, I enter the salesman's domain and I feel awful. I think most first-time homebuyers feel the same way when they walk into my office, especially women, and there's no reason for that."

Be assertive, ask questions, read the brochures, talk to as many professionals as possible, and wait until you feel comfortable to make a decision on which route is right for you. Once you're snuggled into your new place, the long, tedious process will seem well worth the time invested.

Promise Yourself...

• that you won't go with the first Realtor or lender you talk to. Instead, hold off making a choice until you've talked to at least three
• to shop around for the best mortgage rates, and remember to ask about points and fees before selecting a lender
• to pre-qualify for a mortgage before you actually shop for a house or talk to builders. As Realtor Mike Cohen says, a pre-qualifying letter means you can swoop in and snatch your dream house before anyone else gets it
• that before losing your heart to a house, hire a professional real estate inspector to go over it with a careful eye, checking the plumbing, roof, wiring, structural integrity, etc.
• to do three things prior to signing a purchase contract: call the utility company to find out about average bills in the neighborhood; review local property tax bills for comparable homes; and ask neighbors about the local schools

Should You Buy Or Build?

While about three-fourths of homebuyers last year opted for a "resale" house, many female first-time buyers gravitated to builders of brand-new homes, says Dave Oyler, president of Melody Homes Inc. in Denver.

Why? Two reasons, Oyler explains: warranties and more choices.

"The primary benefit is that everything is brand new. You get the full warranty on all the various components of the house," from the roof to the dishwasher, he says.

And if the house is not yet built, you may opt to customize your casa by choosing from a range of structural elements. Adding a front porch, for example, boosting ceilings to vaulted height, or installing a bay window are options many choose.

Many builders also offer homebuyers color and pattern choices. You can buy a partially built home, then choose the Mexican tile for the hearth instead of the pink-veined fake granite. Most builders give buyers plenty of leeway when it comes to window coverings, paint and wallpaper, carpeting, tile and other floor coverings.

You're likely going to pay more for the privilege, of course. But lots of women choose to pay more for a new home, figuring they'll get what they want and forgo remodeling costs associated with "resale" homes.

And the price difference between a new and resale home is negligible in some parts of the country, as Oyler points out.

Denver's hot housing market is a perfect example. The average price of a single-family, new home was $199,238 in the first quarter of 1999. The comparable resale home sold for $192,049.

Yet just four years ago, the spread was much wider - a $29,000 difference rather than 1999's $7,000 difference.

"It depends on the city, the homebuilder and the demand for new homes versus used homes," Oyler says. His tip: check around. A shiny-new home may be the best deal overall.

Spotless Credit? Check Again!

For $8, I order a copy of my credit report so I can see what the lender will be looking at. The first thing I notice is that my cellular telephone company has reported me as being delinquent - by seven months - on a $106 bill! And the information is wrong: I paid the bill, but late, as that was the month I moved from Colorado to California.

I call the cellular company, breathing fire, and they admit their mistake and promise to remove the erroneous infraction. (A week later, I check back, and it's gone as promised).

But wait, there's more! Under "public record information," my credit report shows a property lien pending against me. I'm shocked; I don't own any property! Reading the small print, I see the lien was filed in 1982 by the county recorder's office for $2,468.

In 1982 I lived in a townhouse. Although I didn't put any money into the house, my name was one of three on the mortgage, and when a state tax dispute arose, I was tagged for it. But all that was resolved 17 years ago and the county cancelled the lien. So how can it show up on my credit report in 1999?

"We have no proof that the lien was ever lifted," drones the credit reporting company representative who takes my irate phone call. "You will have to have the county recorder's office send a letter saying what date the lien was lifted."

Take it from me: order a credit report and get pre-qualified for a loan now. You don't want to deal with this sort of hassle once you've found The House and are bidding against others eager to claim it.

How to Pick A Realtor

1) Ask friends, family, co-workers and neighbors who they used when buying or selling a house, and ask if they would use them again. You may also want to check the Yellow Pages or look at newspaper advertisements for Realtors and lenders.

2) Buy a spiral notebook that has pockets inside to hold brochures, house fliers and business cards. For every referral to a Realtor or lender, select a blank page and at the top, write down the person's name, address and telephone. When you contact each candidate, take notes on the conversations. Record your responses, as well. Did you like this person's tone? Was he or she patient and helpful? Did s/he return your phone call quickly? Use the rest of the notebook to make lists, write down addresses of houses you like, etc.

3) Call at least three Realtors and interview them over the phone. Ask how long they've been in business, which area of town they work most in and which sort of real estate they specialize in (downtown lofts and expensive condominiums, for instance, or suburban neighborhoods).

4) Find out what percentage each Realtor charges, and ask to see a sample agreement. Ask questions about any contract language you don't understand.

5) Once you've settled on the best Realtor for your needs, make a quick call to the local real estate board of licensing and be sure he or she is a member has appropriate credentials and is not the subject of complaints.

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