Washingtonpost.com: Live Online

Lenders are forever saying how easy it is for anyone -- regardless of credit history -- to borrow and buy a home these days. But are the claims really true? And are the loans fair and affordable? What should consumers look for in a lender as they buy real estate? And are online lenders all they're cracked up to be?

Kenneth R. Harney is the author of the nationally syndicated column "The Nation's Housing," and understands the ins and outs of loans, mortgages, tax laws and legislation important to both buyers and sellers. He was online to answer your questions Thursday, Sept. 27.

The transcript follows.

Harney is the managing director of The National Real Estate Development Center, which sponsors professional education conferences for public agencies, developers, mortgage executives and real estate attorneys. He also runs his own consulting firm based in Chevy Chase, Md., and is co-founder of the Housing and Development Reporter, published by Warren, Gorham & Lamont, Inc. An honors graduate of Princeton University, Harney did graduate work at the University of Pennsylvania. He has written two books: "Beating Inflation With Real Estate" (Random House, 1979) and "Exchange Your Real Estate: Why Pay Taxes?" (National Real Estate Development Center, 1993).

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

Alexandria, Va.: We are currently shopping around for a mortgage. As we interview realtors and compare lenders, we keep returning to the following question: Are there any disadvantages to using a credit union for financing vs. the lender the realtor recommends? The realtors are clearly biased toward their own lenders and only tell us about the benefits of going with their lenders. Beyond that, they tell us they'll work with whatever lender we choose.

Several realtors we've interviewed have told us that credit unions can be slow in responding to requests for paperwork, approval letters, and funds and, in addition, are usually only available during normal banking hours.

Several realtors have also told us that the major benefit of going with the lender they recommend is that they work with them often and know they will come through in a pinch.

We will certainly go with the lender who offers the best terms for the type of mortgage we want. However, we were wondering if the type of institution and the nature of the lender's relationship with the realtor makes a difference.

Thanks.

Kenneth R. Harney: If your credit union is offering you the best deal--rate, points, fees, etc--I don't see why you should be pressured by anyone to sign up with their "friendly" lenders. I know of no institutional disadvantage connected with credit unions, but do know that for their members they can often cut excellent deals. Good luck

Washington, D.C.: I am submiting early because I will not be in the office at the time of dicscussion, but I really hope you can help. My husband and I need to stop paying rent and buy place. We are currently paying $2,200 per month in rent. We have a $50k cash down payment. The rub is that my credit is not great. Not terrible, but less than perfect. My husband has only been in this country for a few years and has not been able to establish a lot of credit here. I really fear we won't be able to get a mortgage. We have not yet begun to look, because what's the point without financing. What are the steps to go through and the specific order. Do you have any specific lenders who we might try who would be well suited to us? Thanks for your help.

Kenneth R. Harney: Obviously I don't know all the specifics of your situation. But I think you should be able to find financing, even with the credit issues you mentioned. Contact a few local mortgage brokers, and ask for their evaluations. Your substantial downpayment cash is a big plus, allowing you to have a lower "loan to value ratio". You may qualify for Freddie Mac or Fannie Mae programs, or, if your credit problems are more substantial, you may have to pay a bit more on the rate and get a "subprime" mortgage.

Sykesville, Md.: What are the disadvantages of an 80-15-5 loan? We'll have around 5 percent to put down on our new home after settlement on our current home and we want to avoid the mortgage insurance. This seems to be a good option for us, but are there drawbacks we're missing? Thanks!

Kenneth R. Harney: I think you need to run the numbers with your current deal and compare them with alternatives involving PMI. You may find, to your surprise, that one or more PMI deals are quite competitive. Plus the premiums are now cancellable, unlike the dark days of the past....

Woodley Park, Washington, D.C.: Hello,

I'm looking at buying a condo in the District next spring, and am beginning to look into mortgages. One thing that is vexing is that I'll have pretty close to a 20 percent downpayment, it might end up being 18-18 percent. Given an excellent credit history, will I still be able to get a mortgage without PMI Insurance, or does the downpayment need to be absolutely over 20 percent in order to not have to pay mortgage insurance?

Kenneth R. Harney: Generally speaking, when you have less than a 20 percent downpayment, you have to pay PMI. But keep an eye on prices of condos--they are likely to soften along with other forms of residential real estate in the months ahead. You just may find that you do indeed have 20 percent--against a lower price on the condo.

Silver Spring, Md.: Dear Mr. Harney,

I'll be out at 1 p.m. during the live discussion but I'm really hoping you'll answer my question anyway. I realize it may sound naive but I have no idea in how to go about getting a mortgage loan. We make $70k/year and have good credit and about $75k -$100k in cash to put toward a house purchase. How big a mortgage would we qualify for? Who do we call to get the best rate? Are mortgage brokers or the internet a good possibility?

I'm sure a lot of people are like me and don't know where to begin. I'd appreciate any suggestions you might give. Thanks.

Kenneth R. Harney: Wow! 70k income, lots of downpayment cash, and great credit. You are what the industry calls a cream-puff. Sounds to me like you have a great opportunity to buy a house costing three times or more than your income. Begin talking to lenders, shopping around, by phone and online. You'll begin to get a sense of the basics. After that, I think you'll have to chase away competing lenders.

Washington, D.C.: I'm looking to buy a home in a year. My car loan was paid off this past summer. All of my credit cards will be paid off by March 2002, but I will still have student loans from graduate school. Should I try to get preapproved for a mortgage now or wait until the credit cards are paid off?

Kenneth R. Harney: Strange as this may sound, you may not want to pay off all your debts before applying for preapproval on a mortgage. Your credit score is likely to be higher if you have some outstanding credit lines that you've been paying on time. Creditors prefer to see good performance on debts rather than no debts outstanding.

Alexandria, Va.: My husband and bought a home last year, with what at the time was a great mortgage interest rate. However, we are now interested in perhaps refinancing. I have heard of "no cost" refinancing. However, I checked bankrate.com and others and haven't been able to find any information on rates for this type of refinancing. Any good ideas? THANKS!

Kenneth R. Harney: I'm a fan of no-cost refis, and my last refinancing on my own home used that technique. Basically you pay a little extra on the rate--maybe 1/4 of a point--but pay zero or minimal costs at closing. Mortgage brokers tend to specialize in this rather than lenders, and online rate quote sources are of little help. Talk to local mortgage companies, who may be able to custom-tailor your refi.

Arlington, Va.: Hello Mr. Harney,

Forgive a submission from a mortgage greenhorn. I recently finished graduate school and my wife is a recent immigrant, which means that although together we make a middle class income (about $85k) we have very little savings with which to make a down payment.

Should we forge ahead and try to obtain some kind of no (or very low) down payment financing, or should we wait until we can accumulate some kind of savings?

My personal instinct would opt for the more conservative route, but with the housing and mortgage market looking up, I'm afraid we might miss out on something.

Kenneth R. Harney: Your situation is actually quite common: solid income, low savings. Actually the emerging market may well be favorable to you, with or without a large downpayment. Prices are beginning to soften, cutting what you'll need to pay to purchase. And interest rates are nearly their cyclical lowpoints in my opinion. Talk to mortgage brokers and lenders--you don't have to submit an application until you're ready--to get a sense of your options.

Great Falls, Va.: I am just starting the fourth year of a five/one ARM at 6.75 percent. Should I refinance now or wait?

Kenneth R. Harney: Hmmmm. That's always the toughie--are we at the low point in rates for the next year or two, or could rates fall lower. If the latter, obviously you'd want to wait to refi. If the former, you get no advantage in waiting, since fixed rates are about 6.75 right now. My own guess, combined with the best crystal-ballgazing of mortgage economists I talk to, is that rates could fall a little more in this cycle, but probably not below 6.5 percent. You could lower your rate, but not necessarily your monthly payment, by opting for a 15-year replacment loan (currently about 6.25 percent).

Washington, D.C.: Is there such a thing as a "fee-less" mortgage? If not, what are some of the ways to cut back on fees, points, etc.?

Kenneth R. Harney: There definitely are "fee-less" loans in the sense that the fees get rolled into the interest rate you pay. Check with local mortgage brokers for advice.

Washington, D.C.: I am reading all these questions and answers and it all looks like greek to me. Can you recommend a book ar a resource that will take me through the mortgage/ home buying process step by step in terms any fool (with a short attention span) could understand?

Kenneth R. Harney: Sorry about that. Yes, there are some very helpful publications introducing you to home buying and mortgage finance. Some of the best come out of Fannie Mae and Freddie Mac (big mortgage investment companies), and can be either accessed online or ordered online. I believe Fannie's publications are put out by the Fannie Mae Foundation. I don't have their web addresses handy where I am right now, but you can find them easily with any search engine. Also the dept. of Housing and Urban Development has some very helpful things for you online at www.hud.gov

Arlington, Va.: My partner and I would like to get a mortgage with a company who will agree to service the loan for life. So far, the only company we can find that has such a guarantee is GMAC. Do you know of others, or of a source for locating such information? Thanks.

Kenneth R. Harney: I assume you're interested in a servicer for life because you've had some problems with changes in servicers in the past. I think most portfolio lenders--banks, savings banks, thrifts,etc--who retain the loans they originate could provide you some sort of assurance that they wouldn't sell your servicing. But virtually all mortgage bankers sooner or later sell or transfer servicing. By the way, are you aware that you have federal legal protections regarding your servicing that require lenders to notify you well in advance of transfers or sales, and to hold you harmless penalties when payments accidentally get sent to the wrong place?

Fairfax, Va.: There appear to be plenty of refinance rates at about 6.5 percent and zero points available right now. Do you see these dropping significantly still or do you think this is a good time to jump in. I'm at 7.25 right now but we are adding an addition and I've got equity in the house. I think I can get a better deal by refinancing than getting a home equity loan. Thanks for the advice.

Kenneth R. Harney: Check out equity loan offers. I saw one today at 6 percent from a local bank here in the D.C. area (it's in today's Post) which looked pretty tempting. Of course rates like these are adjustable--and could jump up if the economy improves. Otherwise, at 7.25 percent, you could probably get a no-cost refi (assuming your credit is good and payments have been on time) in the 7 percent range or even slightly below.

Falls Church, Va.: My husband and I have high income but little savings since we both got out of graduate school this year. We are tring to search for low-downpayment mortgages. Bank of America offers zero-downpayment mortgage for people who have less than 80 percent of the local median income. So we are not qualified. Are good zero down or 5 percent-10 percent down mortgages available to higher income families? We have found some no-down mortgage advertisements in Harmon Homes magazine. But I don't know if they are good choices. Your opinion will be highly appreciated.

Kenneth R. Harney: I'm familiar with that Bank of America program, and it is aimed at people with lower income than yours. But there are lots of other low-downpayment options out there for you, all of which will include private mortgage insurance(PMI)coverage. With insurance coverage and your good credit and high incomes, you should have no trouble finding "high ratio" (low DP) financing. Shop online and by phone and I'm sure you'll find a good program.

Burke, Va.: What is a 15-year replacement loan you mentioned in an earlier response?

Kenneth R. Harney: By "replacement" I simply meant a refinance--ie, the new loan replacing the former. Fifteen year loans are widely available, and offer slightly lower rates than 30-year mortgages. The tradeoff is that because the amortization period is shorter, your monthly payment on a fifteen year loan will be somewhat higher than your monthly on a 30-year loan at the same interest rate.

Washington, D.C.: I am thinking about refinancing. My current interest rate is 7.875 percent. Is now a good time to refinance, or do you think rates might go lower? (How clear is your crystal ball?) Also, I tried our a mortgage calculator, which said I'd save about $6,000 over the next 30 years if I could reduce my interest rate to 6.625 (I've seen such rates out there.) That doesn't seem like significant savings.

Kenneth R. Harney: All the pressures on rates right now are downward--but in my opinion we will not see any really dramatic declines below 6.5 percent for 30-year mortgage money in the next half year or so. If you've got a 7.875 percent loan right now, I would think you're an excellent candidate to refi, anytime in the coming several months. Even if you save "just" $6,000, that sounds like real money to me...

Washington, D.C.: I am looking to purchase a second (vacation) home next year. I currently have enough equity in my first home to buy to purchase the second home. I currently have a 7/30 ARM that I closed on this summer. Should I refiance my first home and take equity out to buy the vacation home or should I have a separate mortgage for the second home?

Kenneth R. Harney: I think you simply have to run the numbers: To pull out $x to buy the vacation home mortgage-free, how much is that going to cost you over the next 5 or 10 years in the way of higher monthly mortgage payments. Can you get an especially favorable rate on a mortgage on the vacation property--favorable enough so that it would cost you, on a net bottom line basis, less than the refi of your house. Run the numbers based on actual quotes you get from lenders or brokers.

Arlington, Va.: Can you elaborate on "good credit" v. "bad credit" as it relates to getting a mortage? For instance, I just got a credit report, and had only one "potentially negative" late payment years ago, but otherwise no blemishes and current loans/credit cards that are paid on time. At what point should one worry about their credit?

Kenneth R. Harney: I'm not sure I know what a "potentially negative" late payment is.....But whatever it was, your credit report translates into a credit score, and the score is what lenders look at first. You can get your "FICO" score--the most widely used score in the nation--by ordering your credit report online from www.myfico.com or www.equifax.com. The cost should be $12.95. That will give you a sense of how you shape up as an applicant, and it will provide you very helpful information on how to raise your score further.

Miami Beach, Fla.: Dear Mr. Harney:

Please explain the interest rate between an owner-occupied property and an income property. Also, if the Fed drops interest rates again the first week in October, how this will impact the real estate market.

Thank you very much,
Delia

Kenneth R. Harney: Interest rates on owner-occupied properties are almost always lower than on commercial properties or tenant-occupied properties. The rationale is that owners occupying their homes are far better risks than landlords owning rental units. Regarding the Fed: the impact of its short-term rate cuts on mortgage interest rates (other than one-year adjustable rate loans) is debatable. Mortgage money tends to follow 10-year bond rates....

washingtonpost.com:

That was our last question today. Check in with the Online Homebuyers Conference the rest of the week:

Friday, Sept. 28: Bob Bruss on buying and selling real estate at 1 p.m. EDT