Getting right financing is as important as getting the right house

November 29, 1992|By Jason Zappe | Jason Zappe,Copley News Service

The American dream is still owning your own home. But the cost of that dream has become a nightmare for many people. However, the traditional market for buying a house has radically altered. Creative financing exists to help purchase a house.

With houses usually being the most expensive purchase made in a lifetime, choosing the right kind of mortgage can make or break you. Mortgages are as varied as houses. It is possible to find the right mortgage and save money.

Guiding potential homeowners down the mortgage path is John R. Dorfman's "The Mortgage Book" (Consumer Reports Books). In it, Mr. Dorfman provides useful information on getting the right price for a mortgage, when is the right time to refinance and the pros and cons of home equity loans.

Gone are the days of strolling into the bank and getting a 30-year mortgage. Today, consumers must know what type of mortgage they want and what type is best for the financial circumstances.

* Fixed-rate mortgage. Perhaps the simplest mortgage on the market. Percentage rate is fixed at beginning and never changes. This means buyers don't have to fret over rising percentage rates. And if they drop, buyers can refinance.

* Adjustable-rate mortgage. According to Mr. Dorfman, this mortgage benefits the lender and not the buyer. He says that lenders will often offer lower percentage rates. These mortgages fluctuate with the market.

* Balloon-payment mortgage. Buyer has regular payments for a few years, and then an extra large payment at the end. This type allows people who can't really afford to buy a house, buy one, as Mr. Dorfman points out, at least for a while. Usually there is the expectation that buyers will be able to refinance at lower rates when the balloon payment is due. The principal in thismortgage is rarely ever dented.

* Graduated-payment mortgage. Similar to a fixed-rate mortgage, a graduated-payment gradually increases over time. According to Dorfman, this allows buyers to pay less in early years when buying power is modest and more in later years when career and buying power increases.

* Owner financing. Due to the unsteady market of selling houses, some owners will become issue their own mortgage. The percentage rate is usually below market.

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