A lesson in home economics

YAKIMA, Wash. -- Jadira Amaya never thought she'd own a home.

But the 30-year-old single mom wanted her teenage daughter to feel the security and pride that comes with home ownership.

So Amaya, a clerk at Yakima County District Court, embarked this past summer on a home-buying journey -- that roller coaster ride on the way to the great American dream.

"The hardest thing was finding a home I could afford in a good neighborhood," she said.

Making what is arguably the biggest financial decision of one's life is not for the faint of heart. The process has become much more complicated than it used to be when most home deals were private affairs between a willing buyer and seller.

Now there's a daunting array of hurdles, including a paper train seemingly long enough to circle the globe.

But the upside is that there is no lack of helpful information for buyers these days, which means there's no reason not to be armed going into the process.

Amaya, for example, began closing the gap between her dream and reality by attending a homebuyers seminar, where she learned the nuts and bolts of the process. That alleviated a lot of her fears.

Her biggest hurdle was coming up with a downpayment, but she found answers.

"When I took the class, I found out there's help out there," she said.

The city of Yakima, for example, has a downpayment assistance program that provides up to $4,000 for qualified first-time home buyers inside the city limits.

Lending experts and Realtors agree that the biggest obstacle facing most people who have never bought a home is that they lack a good grasp of their finances: How much are they worth? What kind of down payment can they make? What sort of monthly payments can they afford?

"People don't have a good idea of where they stand financially," said Chris Miller, a mortgage adviser with The Advisors, a Yakima mortgage banking firm.

Inexperienced buyers also tend to pick their house first before getting their finances together, which can lead to disappointment.

"People find the house of their dreams and then get a reality check," Miller said.

It's a good idea to get prequalified for a loan before house hunting, said Alicia Stromme, director of lending at Yakima Valley Credit Union.

The process considers income and debts, employment and residence situations, and available funds for down payment and required reserves.

Lots of credit card debt and a recent bankruptcy can be big problems in the lending process. While neither is insurmountable, going through the prequalification will give you an idea of how much you have to clean up your credit record and restore some assets to your balance sheet.

Remember that your assets have to be liquid. If you are using funds from a retirement plan or investment account, you'll need to know how quickly you can get your hands on the cash. Be honest with your banker, because they're going to ask anyway.

"You must be confident you can deliver the funds," Stromme said.

Many buyers make the mistake of focusing too much on the interest rate.

"People so often get hooked by the lowest interest rate that they don't pay attention to the fees on the back end," she said.

Instead, borrowers should look at total loan costs as reflected in the annual percentage rate, Stromme said.

You can make lenders compete by getting at least three "good faith estimates," which are required by the Federal Real Estate Settlement Procedures Act and indicate what fees are due at closing. The document is supposed to be provided within three days of applying for a loan.

Closing, or settlement, costs typically amount to between 3 percent and 5 percent of the sale price.

Some of the costs in the estimate may be negotiable. Keep an eye out for what Stromme calls "junk fees" that don't pay for any services rendered.

Amaya said she leaned heavily on her mortgage adviser and a broker with The Buyer's Agent throughout the process.

"I wasn't afraid to bug them," she said.

And she was glad she had an agent working for her. The Buyer's Agent differs from a traditional realty firm in that it represents buyers only and doesn't have an inventory of houses to sell.

Dan McLaughlin, a broker with the company, said he believes buyer's agents have more loyalty to their clients because their firm isn't also trying to sell houses.

But Realtor Tom Trepanier said times have changed and buyers now always have the option of a "buyers agency" with a traditional real estate firm. And he sees having a listing of homes on the market as a plus, not a minus.

"It would take a long time to find that one home in a thousand that fits your needs, but in a couple of hours with a Realtor you can look at everything," he said.

* Leah Beth Ward can be reached at 509-577-7626 or lward@yakimaherald.com.

Mortgages: some basics

* Minimum down payments range from 3.5 percent to 10 percent of the sale price.

* Your credit score should be at least 620 for FHA loans and 720 for conventional loans with mortgage insurance.

* Your mortgage payment, plus taxes and insurance, can't exceed 33 percent of your monthly gross income.

* Full disclosure to your lender can avoid hiccups later in the process.

-- Source: About.com, Bankrate.com