What are the chances of a seller agreeing to pay your closing costs? Pretty good in a buyer’s market where the seller is desperate to unload a house. Not so good in a seller’s market where houses are moving rapidly. Also, keep in mind that negotiability extends to all areas of the transaction. If you’re getting a terrific price, the seller is less inclined to pay part or all of your closing costs. On the other hand, if you’re giving the seller pretty much what he or she wants in price and the market isn’t too tight, then reduced closing costs may be possible.

Yes, You Can! In today’s highly sophisticated mortgage market, you often can get a lender to cover all or most of your down payment, even all or most of your closing costs. And, as we’ve seen, when the lender won’t do it, there’s always the possibility of having the seller carry back paper to cover your down and costs. But you may finally be wondering, what if I’m not such a qualified buyer? What if my credit is just so-so? What if my income is a bit short? All this in addition to my not having the money for a down payment. There’s still hope. Sometimes lenders will give you a mortgage but increase the interest rate to justify the increased risk to them. Sometimes sellers simply won’t care. And there’s always the chance you can find a house that has an old mortgage on it (usually FHA or VA) that you can assume with no qualifying at all. In today’s market, almost no one who wants to buy a home goes away empty handed. Look into the next article to find a good lender.

One of the newest and most important developments in real estate lending is that now almost everyone can get financing, from the most- to the least-qualified buyers. In the past, in order to get a mortgage you had to be a premium buyer high salary, few other debts, cash in the bank, and sterling credit. Not so anymore. Lenders are taking less-qualified buyers and offering them financing with slightly higher interest rates to make up for the added risk. In other words, if you’ve been shy of applying for a mortgage because of some credit problems, give it a try. You could be surprised at the positive results. Of course, if you’re that prime buyer, you’ll get the lowest interest rates and the best terms.

The Lowest-Interest-Rate Hunt For most people, the first consideration with regard to a mortgage is the interest rate. Higher interest rates translate into higher payments; lower rates, lower payments. Consequently, most people want the lowest interest rates possible.

If you have a credit blemish or have trouble otherwise qualifying, shop for a lender, not an interest rate. Some lenders specialize in borrowers with problems; others won’t touch them.

The best way to compare interest rates is to do it for likekind mortgages. You don’t want to compare apples and oranges. Today there are two major kinds of conventional (nongovernment insured or guaranteed) mortgages available: a fixed-rate mortgage, where the interest rate does not change for the life of the loan; and a variable-rate mortgage, where the interest rate can change. When you compare mortgages, be sure you compare fixed-rate to fixed-rate and variable to variable. (There are so many different varieties of variable-rate mortgages that comparing them is really very difficult.) Of course, at some point, you’ll also want to compare variable with fixed, but that’s a much more complex calculation, as we’ll see shortly.

Each lender who offers fixed-rate mortgages posts its current interest rate. These rates are often printed weekly in local papers. They also can change daily. In many areas a newsletter or online service gathers them all up and sends them off to agents.

Variable interest rate mortgages always offer lower rates. But the variable rate will rise when the interest rate market goes up. It’s usually better to lock in a fixed-rate mortgage when the interest rate market is low, rather than to try for an extra point or so by getting a variable rate. There are also numerous online lenders such as eloan.com and mortgage.com that post their current interest rates. These are very easy to check simply by going to theirWeb site. Major online services such as MSN.com and AOL.com will also lead you to mortgage rate postings. But best of all, if you check with a mortgage broker who handles dozens of lenders, he or she can quickly tell you the best rate in town for the specific amount and type of loan you’re hunting for.

Making the Fixed-Rate Comparison Here’s what a typical list of lender might look like: LENDER INTEREST RATE POINTS FEES Associated Lenders 6.7 0 0 ABC S&L 6.4 1.5 1,400 Amalgamated Bank 6.3 .5 700 Jones Bankers 6.2 2.5 1,350 WW S&L 7 6.1 3.0 1,200 What’s the best loan? It’s the best combination of interest rates, points, and fees. In the previous example, Amalgamated’s loan is outstanding because of the low interest rate, low points, and few fees, even though Jones and WW offer a lower interest rate. At first glance, this list of interest rates might seem complex. After all, there isn’t just an interest rate. There are also points and fees. What’s that all about?

What Are Points? A point is a single percentage of a mortgage. Thus two points on a $100,000 loan equals $2000; four points equals $4000, and so forth. Points are a trade-off the lender is making. If you want a lowerinterest- rate loan (lower than the market), you can get it, if you’re willing to pay points. The more points you pay, the lower the interest rate will be. On the other hand, since points are cash out of your pocket, you may be willing to accept a higher interest rate. The higher the rate, the fewer the points. Normally, at zero points, you’re paying the market rate. Note: The interest rate is very important since it will help determine your monthly payment. The higher the interest rate, the higher your payment. The lower the interest rate, the lower your payment.

What Are Mortgage Fees? Another charge is loan fees. These can be almost any amount, from nothing (where the fees are absorbed into a higher loan amount or higher interest rate) to many thousands of dollars. While some lenders are very up front about telling you what these fees are, some sneak them in at the last moment. When the loan fees are actual costs, such as for an appraisal or credit report, they are considered justified. However, when they are simply added on to give the lender a better “yield” (total return on the mortgage), they are usually called garbage fees. We’ll have more to say about them in Article 16. If you are primarily interested in the lowest monthly payment and have some cash on hand, look for the lowest interest rates. However, be aware that lenders with low interest rates often make up for it by jacking up the points and fees. It may cost you more to get the loan. On the other hand, if you want to reduce your closing costs and can stand a bit higher monthly payment, look for a lender who charges few to no closing costs and points. You’ll usually pay a higher interest rate, but you won’t have to come up with as much cash out of pocket.

TRAP SWITCH LENDERS In all cases, if the interest rate or closing costs are unreasonably high, seek another lender. But do this when you first apply, so you have time to change. If you wait until the deal is ready to close, it may be too late to go hunting for a new lender.

Many lenders today will allow you to trade closing costs and points for interest rates. They’ll even have a scale. As the interest rate goes up, the closing and points go down and vice versa. See the previous comparison. Be sure you compare lenders. Sometimes you’ll find that the trade-offs are too steep from one lender and much more reasonable from another.

How to Compare Variable-Rate Mortgages Variable-rate, also called adjustable-rate, mortgages (ARMs) can also be compared, except that many more factors are involved. The first thing you’ll notice is that the interest rates usually will seem much lower for ARMs than for fixed-rate loans. Once again, don’t be fooled. Remember, compare apples with apples, not with oranges. The low initial interest rate (often called the teaser) is the traditional appeal of ARMs. As such, they appear to be giving you a better deal. But it isn’t necessarily so. There are a number of different factors to take into account when comparing variable/adjustable-rate mortgages. We’ll cover six of the most important:   Teaser rate   Caps   Indices   Margin   Adjustment period   Steps

What Is a Teaser Rate? Most ARMs have a low beginning interest rate. This is usually only a teaser, a come-on to get you to sign up for the ARM. Often the teaser is several percentage points below the true rate. What this means is that in the first few adjustment periods, your effective interest rate will rise even if interest rates in general do not! As an example, the discounted teaser rate may be 4 percent and the true market rate may be 7. You get the ARM at 4 percent. However, if it has 3-month adjustment periods with a maximum adjustment of 1 percent in interest each period, within 9 months it will be up to 7 percent. Your interest rate will go up 1 percent the first 3- month period, 1 percent the second 3-month period, and 1 percent the third 3-month period, so that 9 months after you get the loan you are paying 7 percent instead of 4. Additionally, some of these loans are written in such a way that the interest rate will continue on up to make up for the below-market interest rate you received as part of the teaser. So your interest rate could continue on up beyond 7 percent for a time! Remember, the teaser rate is only temporary. Don’t be fooled into thinking that it is the true rate of your mortgage. Ask the lender what the true rate is. You’ll be shown the APR (annual percentage rate), which will be higher than the teaser but probably still not as high as the current market rate of the mortgage (because the APR is a blending of the teaser and the current mortgage rate). When comparing ARMs, it’s usually to your advantage to go for the one where the teaser lasts the longest, thus maximizing your period of low interest rates.

What Are Caps? Adjustable rates often have caps limiting the maximum amount that the interest rate can rise over the term of the loan and the adjustment period. Rate caps prevent the interest rate on a variable rate mortgage from rising indefinitely. Some loans offer payment caps, where the amount the monthly payment can rise (to compensate for a rising interest rate) is also capped. It sounds like a good idea, but in reality it can be a trap. Monthly payment caps often lead to negative amortization, which, simply put, means that you end up owing more than you originally borrowed! Negative amortization happens when the interest rate goes up and your monthly payment does not. In this case, each month you may not be paying enough to meet just the interest on the mortgage, let alone repaying the principal. The excess interest is then added to the principal and you end up paying more than you originally borrowed! (Usually the lender cannot increase the principal of the mortgage over 125 percent of its original amount through negative amortization.)

What Are ARM Indices? Adjustable-rate mortgages are all tied to an independent (of the lender) interest rate index. These indices rise and fall along with other interest rates and, accordingly, so does the rate on your mortgage. Ideally, most borrowers want an interest rate that has the least volatility so your mortgage payment won’t bounce around too much. On the other hand, lenders want a more volatile interest rate that more closely corresponds to changes in the market place.

More Commonly Used Indices   6-month T-bill rate   1-year T-bill rate   3-year T-bill rate   Libor index (London Interbranch rate)   Cost of funds for the lender   Average of fixed-rate mortgages   Average rate paid on jumbo CDs