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Creative financing, lower mortgage rates attracting many first-time buyers


The "window of opportunity" for homebuyers is opening wider in many regions of the country.

In many cases, first-time buyers are successfully taking the big step into homeownership. The reasons: low home mortgage rates, new and creative types of loans, depressed home prices in many areas and a pent-up demand for homes by purchasers who have long been waiting for the right conditions.

Some of today's first-time homebuyers are combining new and innovative mortgage loans with financial assistance from a family member.

"We're selling an increasing number of homes to first-time buyers," said a particularly active broker. "Some of those buyers produce a 'gift letter' from a parent, indicating that the parent will give [not lend] an amount of money toward the down payment for the couple's first home. This makes it easier for the buyer to qualify for a mortgage loan."

One increasingly popular loan, especially with first-time home buyers, is the Fanny Mae two-step loan, according to Tom Cross, sales manager for 1st Nationwide Bank -- a subsidiary of Ford Motor Co.

The two-step loan provides a low, fixed interest rate for the first seven years, then adjusts to the prevailing rate at that time. It then remains fixed for the remainder of a 30-year term.

Another very favorable loan for first-time buyers is a convertible-adjustable mortgage loan, Mr. Cross said. This loan starts at a low interest rate -- currently about 7 percent. The rate is adjusted annually, but may be converted to a fixed-rate loan any time after the first 13 months. The new, fixed-rate interest will be the prevailing rate at the time of conversion.

"The key to successfully purchasing a home in today's market is education," Mr. Cross said. "Buyers should know precisely what they're getting into. Homes, prices and financing options should be carefully studied."

Mr. Cross noted that a few years ago, some mortgage loan representatives were paid extra fees to push and sell negative amortization loans. They were seldom understood by borrowers and were particularly profitable for lenders.

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