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The Mortgage Maze

If you want to buy a home -- or buy a different home -- you'll most likely need a mortgage, and it can certainly be challenging to navigate your way through the vast array of options currently available. Start the process by researching the real estate market in your area. Buying your own home is often considered a sure-fire investment, but if you're currently living in an area that's experiencing an economic downturn, or if you're expecting a short tour of duty in your current location, buying may not always make sense. You need to do your homework and protect yourself, to make sure that you're taking on "good" mortgage debt, rather than "bad."

You can start your research at Military.com, which has an extensive section on homebuying, homeselling and moving. Then, if you decide that the timing and the real estate market are right, use these tips to help you navigate the maze of mortgage options:

1. The Time Trap. Mortgages aren't usually approved "on-the-spot," especially if they involve a high-ratio mortgage (one with less than a 25-percent down payment). It takes time to put together the paperwork and for the financial institution to follow their internal approval processes -- so factor that time into your planning.

2. "Good" Debt versus "Bad." To protect your personal financial situation, do everything you can to contribute a down-payment of 25 percent or more of the purchase price. Anything less is a high-ratio mortgage that many mortgage providers will view as more of a risk. Think of higher down payments as contributing to "good" debt, because the former gives you lots of equity in the home. That way, even if the home's value drops, you're unlikely to be facing a situation where your home is worth less than the mortgage amount. If you can't make a 25-percent down payment, put down as much as you can.

3. Credit Conundrums. Don't let yourself in for a surprise at your financial institution: check your credit record before you apply for the mortgage. That way, you can be prepared to explain anything on the credit record that might be a problem -- and if there's a mistake, you can correct it before it causes any hiccups.

4. Protect Yourself. Con artists and identity thieves sometimes target homebuyers, especially those working without a qualified professional realtor or lawyer. Never sign any mortgage application that leaves items blank (such as your monthly income), and ensure that you're working with pros. Mortgage fraud and identity theft can create frightening financial -- and even criminal -- nightmares.

. It's all too easy to fall in love with a home that's above your financial comfort zone, and end up being house-rich and cash-poor as you struggle with hefty mortgage payments. Avoid temptation by calculating your upper limit for mortgage payments before you start shopping -- and then get "pre-qualified" by your financial institution (they'll guarantee a rate and mortgage amount for a specific amount of time) so that you'll know exactly what your home budget is.

5. Avoid "Up-Selling" Yourself

6. Reveal "Hidden" Costs. Buying a home doesn't just involve mortgage fees. Homebuyers need to be prepared for the legal and real estate fees known as "closing" costs. Then there are the costs to actually move house, to connect all of your utility services, to insure your new home, to handle any renovations or condo/homeowner association fees, and to pay property taxes and monthly utilities. Avoid surprises, and work these expenses into your home-buying budget.


Stanley J. Kershman is The Debt Doctor. A leading authority on solving financial disasters, he has been helping people get out of debt for more than 25 years. He?s also the author of Put Your Debt on a Diet: A Step-by-Step Guide to Financial Fitness (Pepper Pike Press), a practical handbook that walks you through the process of improving your money management skills. For free copies of Stanley?s handy budgeting worksheets, visit www.debtonadiet.com.

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