Your Broker is Your Pimp 

How to Make Your Money Work for You

The most remarkable thing about buying a house is that you don't actually own the house the bank does (at least the bulk of it)! But what's nice is that the bank lets you live in it--and tear down walls, and paint it whatever color you want, and own a dog that chews up closet doors.

But to buy a house, you need a mortgage, and here's how mortgages work: Imagine you want to buy a $150,000 bungalow off Alberta Street. Now, don't freak if you only have loose change bumping up against the lint in your pocket. The bank will give you the money. Say you put down a five percent down payment ($7,500 on that cute house off Alberta), the bank will loan you the remaining $142,500. It's sort of like an absent roommate who pays for most of the rent. The bank owns 95 percent of this house, but they don't live there, don't use up all the toilet paper, and don't listen to Alice Cooper CDs late into the night. They'll just bug you once a month--when it's time to pay your "mortgage."

Sound too good to be true? It isn't! Contrary to popular belief, any moron can get a mortgage! That means you too Moron!

Your credit history: Say you've got some credit issues. Forgot to pay parking tickets in California? Skipped out on a PGE bill while living in that Hawthorne commune five years ago? Remember those "we'll turn this over to a collection agency" letters shoved in your underpants drawer?

First step towards securing a mortgage is getting your credit report. It's easy and nearly free! [Check out: www.free-credit-reports.com, or equifax.com]

If there are errors on your credit history, remove them faster than a genital wart. It's a hassle, but not impossible. Write a letter to the party you owe money to. Explain why this is a mistake.

If those blemishes on your credit really aren't mistakes, pay them off now. Also, now's the time to start saving for a down payment and look into getting a job.

Whatever you do, do NOT get new credit cards at this point. This makes you look poor and desperate. Instead, try to pay off your current cards. Also, start collecting past bank statements and tax forms.

Choosing your Mack Daddy: So you've got a steady job and some money in the bank. Your next step is finding a broker so you can get "pre-approved." A broker is only as good as the deal he can get for you. Ask around for recommendations.

You want to be pre-approved before you look at houses in earnest (you will receive a letter saying you are pre-approved for X amount; this is the maximum price you can pay for a home). If you're not pre-approved, and you find your dream hut, you'll need to do so before you can make an offer. This can take a few weeks. In the meantime, someone may swoop in and take the house that's rightfully yours!

What kind of mortgage you want from the Man: You want a 30-year fixed mortgage. Trust us.

The 411 on down payments: Houses aren't quite free. You'll need a down payment and money to pay for "closing costs." Generally you need to put down at least 5% of the cost of the house. (Or if you're poor enough, you might qualify for an FHA loan program--those only require 3%.)

As a rule of thumb, your closing costs will probably equal your down payment. That means in order to buy a $150,000 house you'll need $15,000--$7,500 for the down payment, and another $7,500 for closing costs like house inspection and insurance. There are ways to wrangle this number down--ask your broker. If he has no suggestions, find a new broker. Also ask your broker about "buying points," and when to lock-in your low interest rate.

How big is your loan? Say you're an editor for the Portland Mercury. You make $14,000 a year, before taxes. But your spouse works for Intel and makes $62,000 a year. Together your household income is $76,000 a year. Multiply that by three and you'll get the general range of the pre-approved mortgage amount you can expect, in this case $228,000. This assumes you have no other debts, or living costs of any kind.

There will be additional costs. You have to pay property taxes now. Usually these are paid each month into an "escrow" account. This is an account set up to hold your money, which is paid out for taxes and home-owners' insurance. Escrow costs will be roughly $100 - $200 each month. Also, if you pay less than 5% down payment, you will need to pay "mortgage insurance." This insurance protects the mortgage company in case you default on your loan. It does nothing for you. It costs about $100 a month. It sucks.

All told, you should calculate that your mortgage is no more than 50% of your monthly household income. Yes, the bank will loan you more than this, but allowing this to happen means your mortgage will transmogrify into a big, hairy beast who will be breathing hot and heavy down the back of your neck every waking (and insomniac) moment for the rest of your life. Eventually, after you miss too many payments in a row, the bank "forecloses" on your house, reclaiming the portion you haven't paid for. There will be an auction, shame and... Oh, sorry, we digress. Homeownership is a happy, happy excursion. Just make sure you have a mortgage within your reach--or start scouting for dry spots underneath the Hawthorne Bridge.

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