Jeff Kaller

We also profile four home owners who have used real estate to begin building their own portfolios of wealth and power.

When you buy a home, you typically take out a mortgage loan to finance the purchase. Think of rent as the money you give landlords to pay their mortgage or to stop foreclosures. Company credit unions and many companies have credit unions that offer their employees discounts on everything from car loans to mortgages. If you belong to a credit union, check to see if it will lend you money for a down payment or closing costs.

In seller financing, often the owner of a property will "hold paper"-that is, finance a portion of the purchase for the buyer by not taking all the proceeds when the sale closes. These bank programs plans can help with down payments. For example, Wells Fargo features the National Homeownership Mortgage, which lets buyers obtain 100-percent financing if their FICO credit score is 620 or better. The Department of Housing and Urban Development (HUD) is also proposing a "zero down payment mortgage" next year for Federal Housing Administration (FHA)-backed mortgages.

You've found the house you want at a price you can afford. Your other debts Banks will also look at other installment bills you pay monthly, such as credit cards, school loans and a car note, when evaluating you for a loan. In this instance they don't want your mortgage debt and other installment debt to be more than 40 percent of your gross monthly income. If it does, this will affect how much of a house loan you actually qualify for.

Credit rating is just as critical as income in qualifying for a home loan, because your credit rating tells banks how good your record has been in making timely payments on other debts. Credit-reporting agencies now connect a score to your credit rating. Financing isn't impossible, but you'll probably have to pay a higher interest rate or other fees to obtain the loan."

Even in today's red- hot real-estate market, there are house deals to be found.  If foreclosed properties aren't bought privately, they're put up for auction to the public. Local newspapers will also advertise available properties and auction dates and times.

With community programs Increasingly, African-American organizations in predominantly Black neighborhoods are developing real estate or renovating housing and selling it on favorable terms to area residents.  Hit upon out which organizations in your neighborhood are financing housing ventures by calling churches, community-development corporations and civil-rights agencies. 

Real estate usually involves big money, which makes it ripe for scams. In Developer's glad-handing, many housing developers will offer to do everything for you from inspecting the property you're buying from them to financing the mortgage. Compare rates and your eligibility with banks or mortgage companies before going to a developer financing.

 Home-a-loan sharking "Hard money" or "shark" lenders prey on high-risk borrowers with ads that say things like, "Mortgage money guaranteed! Your income is critical, and so is the price of the house, but interest rates are the key to calculating how much you can afford: The higher the interest rate, the more it costs to pay for the loan. Say you want to take out a $100,000, 30-year, fixed-rate mortgage loan. At today's prevailing rate of 6 percent, the payment on that $100,000 mortgage would be $599.55 a month. Suppose property taxes and insurance add $250 (actual amounts will vary, depending on the property), equaling $849.55 a month. At 9 percent the rate a few years ago, your mortgage payment alone would have been $804.62, or $205.07 a month more than at 6 percent. At the lower interest rate you can afford the mortgage, taxes and insurance for about the same cost of just the mortgage at the higher rate. With mortgage interest rates the lowest they've been in 40 years, houses have never been more affordable, which makes this a good time to buy, even with higher house prices?

Mortgage a loan that is made against real estate, with the real estate serving as the collateral. For instance, if you put down $5,000 on a property that cost $100,000 but is now worth $125,000, you have $30,000 worth of equity in the property (the $5,000 you put in, plus the $25,000 rise in value). Fixed rate the amount of interest you disburse on a loan remains the same for the term of the loan.

Points another term for percent: a bank, for example, that's charging three points on a mortgage loan, is charging 3 percent. PITI Refers to the four components of a monthly mortgage payment: principal and interest, taxes and insurance. Escrow The amount of money a bank may collect from you and hold in reserve to pay the taxes and insurance on a property.

PMI If you put down less than 20 percent of the purchase price when buying property, banks may require you to take out private mortgage insurance, which indemnifies them from loss should you default on the mortgage.

Closing the last step in the home-buying process in which you receive the title to a property. Expect to pay closing costs that could run between 4 and 6 percent of the mortgage amount.

Tara Roberts, an Atlanta magazine publisher, lived in New York City. Now bitten by the real-estate bug, La-Nita, 35, a surgical technologist, and Keith, 39, an inspector at Boeing, bought a second property for rental income in 9 1999 for $112,000. The seller of the first house held a second mortgage on this property, which he agreed to sell to the Thomases for $7,000. Keith tapped his company pension to buy out the seller's position. Shortly after, the owner of the house, who owed the first mortgage and had retired to Montana, agreed to let La-Nita and Keith buy the house for what he owed the bank, $105,000. La-Nita and Keith assumed his loan, meaning they took over the payments and didn't have to come up with any more money than the $7,000 they originally paid.

The seller of their new property paid all closing costs. Today they own three properties with an estimated total market value of $579,000 that cost them $10,000 out-of-pocket to acquire. The income from the two rental properties more than covers both those mortgages. Offered through a first-time home-buyers program in Brooklyn's predominantly Black Bedford-Stuyvesant, it was a majestic farick-and-limestone ltalianate four-story, four-bedroom, two-family town house, gleaming like a polished jewel on a block of stately brownstones. "I never thought I could get a property like that-I figured it would go to a sister in the choir," says Benson, 40, a corrections officer at Rikers Island prison, who quickly got his money back from the Queens house and applied for the Bedford-Stuyvesant house anyway. 

Neil

Mortgage defaults and foreclosures may rise this year, but a strong housing market will limit any increase, according to loan specialists, a regional economist and a title company official. Defaults and foreclosures dropped nationwide and in the Boise area last year as borrowers sidestepped defaults by quickly selling their homes at high prices. Default notices filed in Ada and Canyon counties through July fell by about 12 percent from a year earlier. 

If we arrive to somewhere above 7 or beyond, I would begin to think we might see some problems, he said.7 is probably elevated enough to begin to noticeably reduce demand. If mortgage rates only go up a little bit, and job growth continues to be very strong, I don't believe there's any reason to anticipate a noticeable increase in delinquencies and foreclosures this year, Matthews said. The housing market in Idaho and the Intermountain region has room to cool; the market can sustain 8 to 10 percent annual price gains much more easily than recent 16 and 17 percent increases, he said. Wells Fargo Home Mortgage expects another strong year for mortgage originations in Idaho, said Idaho Area Manager Jeff Grutta, based in Hayden. 

It wasn't long ago that homeowners across the country were gloating over soaring home values in their neighborhoods. Wall Street firms that once enthusiastically packaged mortgages into securities and encouraged lax lending standards and 100% financing are pressing lenders to tighten up. In reaction, lenders now require larger down payments or more equity, higher credit scores and closer scrutiny of appraisals.

Although the vast majority of borrowers still make their payments on time, mortgage bankers report record rates of delinquency and foreclosures. A few high-profile subprime lenders--firms that awarded loans to people with blemished credit or undocumented income--have declared bankruptcy. Even property owners with the best credit feel the squeeze from falling home prices and rising rates. Toward the end of the boom, the amount of adjustable-rate mortgages with cheap initial rates surged as home buyers struggled to get a foot in the door of houses selling for bloated prices.

Kevin Kempskie is not your typical investor. In Boston, investors had already driven up prices and condo conversions were out of control, but Attleboro had escaped the rush and price run-up.

Following his mortgage broker's advice, he traded in his fixed-rate mortgage for an ARM with a rate of 5.97 percent for the initial year. The loan, known as an option ARM, offered four payment choices, including a minimum payment that didn't include all the interest due.

Like many other dangerous mortgages, the loan carried a prepayment penalty that would apply if he refinanced within three years. Often, to boost their commissions, brokers would push for the prepayment penalty because it increased a loan's appeal to investment firms issuing packages of mortgage-backed securities.

The couple bought a single-family residence and began making two credit payments.

The $2,650 that Kevin collects in monthly rents is just enough to cover the loan's minimum payment of $2,370 and the building's operating expenses. For years, swarms of investors descended on his hometown, buying and flipping some of the cheapest housing in the state, driving up the area's median home price from $99,000 in 2001 to $280,000 in 2006. Franey, 63 years old also feared that when the investors left for greener pastures, prices would decline and he and his wife, Mira, 60, might lose the equity in their home just as they approached retirement. And also was under pressure to make their mortgage payments of $3,200 a month and running out of savings, the couple tried to sell the home last fall but had no takers. Mike approached their lender, Countrywide Financial, and offered the deed in lieu of foreclosure, just to stop foreclosures.

The Franeys forgot their first mortgage payment in January, and in February they listed the home for sale at $368,500. Countrywide agreed to accept a "short sale," meaning it would cancel the couple's debt in exchange for the proceeds of the sale. Short sales rescues lenders the legal costs of foreclosure. By then, Mike's loan underwriter tells him, he'll be able to get a mortgage again, as his credit score and his income improve.

Encouraged by the ease of selling questionable loans to investors, lenders relaxed their standards.

As investors and homeowners were overcome with speculators' fever, the mortgage industry fed Wall Street's hunger for high- yield securities by reselling packages of subprime loans. Says Charles Pope, an executive officer of Mortgage Authority, in Florida: "Mortgage companies were having such a good time selling bad paper, they said, Let's get crazier. If you can fog a mirror, we've got a loan for you." Cheered by the effortlessness of selling questionable loans to investors, lenders relaxed their underwriting standards.

Easy credit aided feed the housing boom in Florida and other hot markets. In St. Lucie County, Fla., the average residential property price doubled between 2002 and 2005, peaking at $263,700.

In that frenzy of building and buying, Linda Steele and her husband bought their first home in Port Saint Lucie, the district seat. The couple paid $187,000 for a newly built four-bedroom, three-bath single- family home on a quarter-acre. At $1,500, the mortgage payment was manageable with two incomes--although, as the family's primary breadwinner, Steele worked 14- to 16-hour days as a regional manager for a drugstore chain.

Because of the decline in household income, she had to refinance into a subprime mortgage. In middle of 2006, when the fixed-rate period on her mortgage ended, Steele refinanced into another 2/28 mortgage, this time with an interest rate of 9% because her credit score had fallen. Property taxes imposed by the government rose with home prices to pay for new municipal infrastructure as new- home development mushroomed, and insurance costs soared in the wake of multiple hurricanes. Steele's mortgage payment rose to $2,800 a month.

Steele draw near her mortgage lender hoping for a forbearance-- meaning she would be able to skip a few months' payments, which would be tacked on to the end of her loan. Instead, the lender told her that if she could pay her mortgage fees on time for three months it would consider adjusting the interest rate downward.

Steele still has equity in her home, but she isn't confident that she can sell it fast enough to avoid foreclosure. Since the county's market peak, the number of homes for sale has more than doubled, time on the market has increased, and the median home price has fallen.

Even if you're a fiscally conservative homeowner, you may be feeling the pressure of high housing costs, particularly if you have an adjustable-rate mortgage with a rate that's headed up or if your income has taken a hit.

Rates on 30-year fixed-rate mortgages are still good-looking and are generally lower than fully indexed rates on adjustable-rate loans. If you can't refinance because your financial prospects are poor, you have no equity in the home or you're looking at a large prepayment penalty, you may want to try selling your home yourself.

Take advantage of mortgage relief, if it's available. In California, legislators have recommended creating a mortgage pool to assist first-time homeowners in trouble. Head off foreclosure. As quick as you think you will miss a mortgage payment, call your lender to discuss your options. Close to refinancing, those may include a forbearance (you temporarily pay nothing or only a minimum amount, making up the payments either over time or at the end of the loan), or a loan modification (the lender temporarily adjusts the interest rate). If all else fails, you could try to discuss a short sale. In that case, the lender agrees to cancel your debt in switch for the proceeds from the sale of your home. When you cant stop foreclosure make you sell your home at a good price.

The method moves after that.

neil