First-time buyers get guidance on real estate purchase

Excellent credit may make up for no down payment
By: Robert J. Bruss: Inman News
DEAR BOB: My son and daughter-in-law rent an apartment in a great community. They both have good jobs. But they have zero savings for a home down payment. I'm not in a financial position to help them with a down payment. With the high cost of houses where they live, is there any way they can ever buy their own home? – Bill P.

DEAR BILL: Yes. Before looking at homes, your son and daughter-in-law should first get pre-approved in writing by an actual mortgage lender, such as a bank or mortgage banker. A mortgage broker can arrange such a pre-approval, but a mortgage broker's "pre-qualification" is worthless because he is not the money source.

If your son and daughter-in-law lack a cash down payment, that shouldn't stop them if they have decent FICO (Fair, Isaac and Co.) credit scores. With good FICO scores, they can obtain 100 percent mortgage financing.

Armed with a written pre-approval letter from a mortgage lender, then they can shop for a house or condo in the vicinity where they want to live. But you can counsel them not to expect their first home to be their dream home.

The important consideration is to get started on the first step of home ownership. To illustrate, my first home cost me $27,000. My friends thought I was crazy to pay so much. But I built equity from mortgage paydown and market-value appreciation, then by selling and moving up to better residences.

Today, I live in my "dream home" and I own a second, or vacation, home. Looking back, my first home was a "dump" compared to where I live today. But we all have to stretch our budget to buy our first home. Your "kids" can do the same.

ARE "OPTION MORTGAGES" GOOD OR BAD?

DEAR BOB: I constantly hear radio ads for "option mortgages." As I understand them, I can pay either interest only, or the fully amortized monthly payment. Is this a good or bad deal? – Suzanne P.

DEAR SUZANNE: Option mortgages can be a great way to buy a home with minimal monthly mortgage payments at the "interest only" level.

However, if you plan to stay in the home "forever," you should pay the amortized mortgage payment amount each month so you will eventually pay off the mortgage in 30 years.

But watch out for "negative amortization." That means your monthly mortgage payment at the interest only level adjusts annually, but the actual interest rate adjusts monthly. Any unpaid interest is added to your mortgage principal balance. The result can be you owe more than you borrowed.

To avoid "negative am," if you can afford to pay the full amortization payment, then you won't owe more than you borrowed.

PROMISES MEAN NOTHING WHEN INHERITING PROPERTY

DEAR BOB: For over seven years, I cared for my late husband as he gradually died from several causes. We were never married. But he often told me that because I took such good care of him I would inherit his real estate, which consisted of his house and at least three rental properties. However, after he died, his two sons took possession of his house, threw me out, and I have not been able to obtain a copy of his will. How can I claim my inheritance? – Josie H.

DEAR JOSIE: Oral promises mean nothing when it comes to inheriting real estate. Without written evidence, you have nothing.

If you weren't legally married to your "late husband," that is another problem because then you don't have any spousal rights. My best advice is to consult a local family law attorney, but don't get your hopes up.

The new Robert Bruss special report, "The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners," is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.